2011Vol.41No.2 by AmCham Taipei

THE AMERIC AN CHAMBER OF COMMERCE IN TAIPEI

INDUSTRY FOCUS The Telecom & Mdeia Sector

Februar y 2011

Vo l u m e 4 1 N u m b e r 2

w w w. a m c h a m . c o m . t w

Growing Taiwan’s Banks

TAIWAN BUSINESS TOPICS

讓台灣銀行業脫胎換骨

Februar y 2011 • VOLUME 41 NUMBER 2 中華郵政北台字第號執照登記為雜誌交寄 5000 2_2011_Cover.indd 1

NT$150

COVER SPONSOR

2011/3/1 11:21:16 AM

CONTENTS

NEWS AND VIEWS

4 Editorial Where Should Bank Data Processing February 2011

be Conducted?

volume 41, number 2

一○○年二月號

Publisher

Andrea Wu

發行人

吳王小珍

Editor-in-Chief

銀行資料非得在台處理？

5 Taiwan Briefs

沙蕩美術主任 /

Production Coordinator

Katia Chen Staff Writer

Jane Rickards

後製統籌

採訪編輯

消費者憲章真有必要？；健保的改革之路

Taiwan: Regional Manufacturing Headquarters by 2020

By Stephen Su

COVER SECTION

李可珍

14 Growing Taiwan's Banks

曹玉佳翻譯

胡立宗

Translation

Zep Hu

Do Consumers Need a "Bill of Rights?"; Reforming National Health Insurance

陳國梅

Manager, Publications Sales & Marketing 廣告行銷經理

Irene Tsao

12 Commentary

By Don Shapiro

總編輯

Don Shapiro Art Director/

9 Issues

American Chamber of Commerce in Taipei 129 MinSheng East Road, Section 3, 7F, Suite 706, Taipei 10596, Taiwan P.O. Box 17-277, Taipei, 10419 Taiwan Tel: 2718-8226 Fax: 2718-8182 e-mail: amcham@amcham.com.tw website: http://www.amcham.com.tw 名稱：台北市美國商會工商雜誌發行所：台北市美國商會臺北市10596民生東路三段129號七樓706室電話：2718-8226 傳真：2718-8182 TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2011 by the American Chamber of Commerce in Taipei,

讓台灣銀行業脫胎換骨 Too many and too small, the domestic banks find themselves in the most competitive and least profitable market in Asia. Yet the consolidation effort to create fewer but stronger banks appears to have stalled in the face of labor opposition and sensitivity about any favoritism to large private conglomerates. Without renewed consolidation, however, starting with stateowned holdings, many experts consider that Taiwan will be unable to develop a robust banking system commensurate with its success in the tech sector. By James Peng 撰文／彭智明

22 Taiwan Banks Eye China Market

Printing by Farn Mei Printing Co., Ltd. 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105敦化北路222巷19之1號1樓發行日期：中華民國一○○年二月

TAIWAN BUSINESS

中華郵政北台字第5000號執照登記為雜誌交寄 ISSN 1818-1961

OFFICERS: Chairman/ Bill Wiseman Vice Chairmen/ William E. Bryson / David Pacey Treasurer: Carl Wegner Secretary/ William J. Farrell 2010-2011 Governors: Michael Chu, Alan Eusden, Douglas R. Klein, Cindy Shueh Lin, David Pacey, Stephen Y. Tan, Lee Wood. 2011-2012 Governors: William E. Bryson, Alexander Duncan, Christopher Fay, William Farrell, Steven Lee, Neal Stovicek, Carl Wegner, Bill Wiseman. 2011 Supervisors: George Chao, Varaporn Dhamcharee, Jenny Lin, Ashvin Subramanyam, Ken Wu. COMMITTEES: Agro-Chemical/ Mong Yang Tan; Asset Management/ Christine Jih, Derek Yung; Banking/ Carl Chien; Capital Markets/ William Bryson, Jane Hwang, Jimin Kao; Chemical Manufacturers/ David Price; CSR/ Lume Liao, Fupei Wang; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Stephen Tan; Human Resources/ Richard Lin, Seraphim Mar; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark O’Dell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Jeffrey Harris, Douglas Weinstein; Manufacturing/ George Chao, Albert Li; Marketing & Distribution/ Christopher Fay, Wei Hsiang, Gordon Stewart; Medical Devices/ Daniel Yu; Pharmaceutical/ David Lin, Jaime Robledo Cadavid; Real Estate/ Peter Crowhurst, Kristy Hwang; Retail/ Angela Chang, Prudence Jang, Douglas Klein; Sustainable Development/ Eng Leong Goh, Kenny Jeng; Tax/ May Lee, Cheli Liaw, Josephine Peng; Technology/ Revital Golan, R.C. Liang, Jeanne Wang, Deborah Yen; Telecommunications & Media/ Ben Way, June Su, Jason Wang; Transportation/ Gary Wu; Travel & Tourism/ Pauline Leung, David Pacey.

25 Working Out a Business Strategy

Taiwan has seen both successes and failures in the fitness club market since the first major foreign brand set up here in 1999. By Timothy Ferry

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COVER SPONSOR

f eb ruary 2011 • Volume 41 n umbe r 2

INDUSTRY F

CUS

Leading the way in Asia, Africa and the Middle East Standard Chartered PLC is a leading international bank, listed on the London, Hong Kong and Mumbai stock exchanges. It has operated for over 150 years in some of the world's most dynamic markets and earns more than 90 per cent of its income and profits in Asia, Africa and the Middle East. This geographic focus and commitment to developing deep relationships with clients and customers has driven the Bank’s growth in recent years. In 2010, Standard Chartered delivered its seventh consecutive year of record profit and income. The Bank’s long-term dedication to banking ethics, aligned with its expertise to deliver shareholder returns and to gain strategic advantage, has enabled it to clinch seven awards in The Banker’s Bank of the Year Awards, including Global Bank of the Year and Bank of the Year in Asia .

A Report on the Telecom & Media Industry Keeping Up With the Fast Pace of Change 30 Taiwan Entering Era of Wireless Internet Access

Standard Chartered aspires to be the best international bank for its customers and corporate clients across its markets. With 1,700 offices in 70 markets, Standard Chartered offers exciting and challenging international career opportunities for more than 80,000 staff. Leading by example to be the right partner for its stakeholders, Standard Chartered is committed to building a sustainable business over the long term and is trusted worldwide for upholding high standards of corporate governance, social responsibility, environmental protection and employee diversity. The Bank’s heritage and values are expressed in its brand promise, ‘Here for good.’

By Philip Liu

33 Are the Targets Reasonable?

By Don Shapiro

35 Inside Taiwan’s Animation Funhouse

By Jonathan Seidman

36 Getting Illegal Radio Stations Off the Air

By Don Shapiro

Standard Chartered in Taiwan is Here for good

SPECIAL SECTION

38 Recollections and Reminiscences

In honor of AmCham’s anniversary, 23 past Chairman recall their Chamber experience.

51 AmCham Companies Through the Years

In Taiwan, Standard Chartered opened its first branch in 1985. In 2006 it became the first international bank to acquire a local bank with the acquisition of Hsinchu International Bank. This was followed by the acquisition of American Express Bank and Asia Trust and Investment Corporation in 2008, expanding its network from 3 to now 90 branches. Today, Standard Chartered is the largest international bank in Taiwan by branch network, in addition to having the largest mortgage, personal loans and small and medium enterprise (SME) loan portfolio amongst international banks. The Bank has demonstrated its strong commitment to the Taiwan market, employing nearly 4,000 Mandarin-speaking talents, with the network and capabilities to provide a full range of financial products and services to both individual and corporate clients across the Greater China region. Standard Chartered Bank Here for people, Here for progress, Here for the long run Here for good For more information, please visit www.standardchartered.com.tw

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E d i t o r i a l 銀行資料非得在台處理？

W h e r e s h o u l d B a n k D ata processing be conducted?

本

s this month’s cover story on Taiwan’s banking sector points out, the government has yet to come out with a clear roadmap for how it would like to see the industry develop so that it may make the optimum contribution to Taiwan’s overall economic progress. In the absence of that vision, decisions on policies affecting the industry are increasingly being made on the basis of short-term considerations, often leaving industry players with a sense of unpredictability that is detrimental to a sound investment environment. A recent example of that phenomenon has been apparent preparation by the Financial Supervisory Commission to require the subsidiaries and branches of foreign banks to locate all or most of their data-processing operations within Taiwan. Although no formal policy has been announced, the FSC’s Banking Bureau has been assiduously collecting information from the individual banks on what would be involved in making such a change. Currently, in line with global trends aimed at achieving better economies of scale, the data-processing function tends to be performed as a centralized operation serving an entire region. Relocating part of the function to Taiwan would entail substantial costs that would diminish Taiwan’s attractiveness as a place for doing business. Why then would the regulator wish to impose that requirement? In the absence of clear communications with industry, the motivation can only be guessed at, but one likely explanation is concern – given the liberalization of previous restrictions on crossStrait financial operations – about the future implications of the operations in Taiwan of mainland banks. When Chinese banks set up branches in Taipei, will the Taiwan authorities feel comfortable if the financial data of the banks’ Taiwanese customers is located in China? That may be a legitimate question, but if that is the key worry, there should be more targeted ways to deal with the problem than to add to the burden of all foreign banks. Another possible motivation is to enhance control over customer financial data in general, so as to avoid any leakage that might reflect poorly on the role of the regulator. But again, other means would be available to achieve the same aim – through setting higher standards of control, supervision, and audit – regardless of the physical location of the data center. In fact, a large regional center may be able to adopt more sophisticated and expensive software to protect the data than a smaller, in-country operation could manage. Major foreign banks have committed substantial sums over the past several years in acquiring local institutions and in the process raising the standards of the domestic banking industry. An issue such as the proper location of data-processing centers should be treated as part of a broader set of policies and principles, designed to create a favorable environment for banks to serve this market for the benefit of customers and the economy as a whole.

期封面故事「台灣銀行產業的困境與前景」指出，政府迄今仍無清楚明確的產業發展政策，難以誘導銀

行改善體質、以更積極的角色協助經濟發展。政府欠缺發展願景，產業政策自然越來越受制於短期因素，銀行業者因此難以預測未來走向，投資環境也隨之喪失安定性。近期的實例之一是，行政院金融監督管理委員會準備要求外資銀行在台子公司與分行，將全部或絕大多數資料處理業務移入台灣。雖然政策尚未宣布，但金管會銀行局已向業者索取資料，瞭解更換作業地點所涉及的事項。跨國銀行業者間的趨勢是，各區域內選定一地集中處理存放款等業務的資料，以達成更有效率的經濟規模。政府一旦強制外銀必須將與台灣有關的資料處理移至台灣，業者的成本必然大增，影響台灣市場的吸引力。政府此一決策的背後原因為何？由於政府未做明確說明，業者只能猜測，政府或許擔心，隨著兩岸金融管制解除，中資銀行遲早會進入台灣市場，因此必須預防可能的負面衝擊。中資銀行設立在台分行後，台灣政府當然會擔心，台灣客戶的金融資料是否被送回中國進行處理。但業者認為，如果政府擔心資料流往中國，該做的是採取針對性管制，而非一體要求所有外銀。業者猜測的另一個原因是，政府想要強化客戶金融資料的監督管理，避免資料外洩事件衝擊政府形象。但業者認為，只要建立更高標準的管理、監督、稽查，不論資料處理中心位在何地，政府都能更有效預防資料外洩。從實務經驗來看，相較於小型、單一國家的資料處理中心，大型、區域的資料處理中心，更有餘裕購置先進與昂貴的資料保護軟體。大型外商銀行近10年來投入可觀資本購併本地金融機構，間接促成台灣銀行產業的整體水準向上提升。業者企盼，政府能以更宏觀的政策與原則，看待外銀對資料處理地點的選擇權。畢竟，只有政府積極建構適於銀行發展的環境，銀行業者才更能服務消費者、協助經濟發展。

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BY DON SH A P I R O

MACROECONOMICS

ECONOMY LOOKS UP The Directorate General of Budget, Accounting and Statistics confirmed in mid-January that Taiwan’s economy had grown in 2010 by a sizzling 10.47%, its best performance since 1988. DGBAS added that per capita GDP hit a record high of US$18,534 last year, while the consumer price index rose by a modest 0.96%. The government statistics agency attributed the betterthan-expected showing to “improving global conditions, as well as stronger domestic consumer confidence buoyed by rising employment and vibrant financial activity.” The double-digit growth of 2010 was of course made possible only by the low base of recession-bound 2009, but indications are that Taiwan can continue to enjoy a strong, if less spectacular, economic performance in the year ahead. Taking a relatively optimistic view, the Taiwan Institute of Economic Research (TIER) adjusted its forecast for this year’s growth to a robust 5.71%, up substantially from the 4.12% it had projected last July. The current World Bank forecast for Taiwan for this year is 5% growth, with Global Insight project-

ing 4.8%. “Exports are estimated to grow 8.07% this year and imports will increase 6.34%, resulting in a trade surplus of US$29.48 billion,” TIER said in a report. Although the U.S. market remains soft, Taiwan’s exports will be spurred by high demand within the Asian region, especially from China and India, the institute said. Despite those positive signs, concerns are rising about the appreciation of the New Taiwan dollar and the possibility of more inflationary pressure than Taiwan has witnessed in several years. TIER predicts that the local currency will trade at an average of US$29.7 to the U.S. dollar this year. Meanwhile, DGBAS cautioned that the government’s

target of a 2% increase in the consumer price index during 2011 could well be exceeded due to increasing global fuel and commodity prices. The Ministry of Economic Affairs is seeking to ease the inflationary pressure, especially for food products, by lowering tariffs temporarily for key items and taking action to prevent hoarding. CROSS-STRAIT

HU VISIT BRINGS NO CHANGE IN U.S. POLICY Chinese President Hu Jingtao’s mid-January visit to the United States appeared to satisfy Beijing’s desire to boost its international image and prestige, while giving U.S. President Barack Obama the chance to emphasize the need for China to take a

Taiwan stock exchange index & value

THE BLUE LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.

9500

185

9250

175

9000

165

8750

155

8500

145

8250

135

8000

125

7750

115

7500

105

7250

ECFA COMMITTEE GETS ESTABLISHED

January chart source: TwSE

responsible role as a world power on such issues as reining in an adventurist North Korea. Although Hu used the opportunity of a speech in Washington to a group of U.S. business leaders to reiterate that relations between the United States and China could face “constant trouble or even tension” if Washington does not respect China’s sovereignty and core interests with regard to Taiwan and Tibet, the visit ended without any major impact on U.S. policy toward Taiwan as U.S. officials reportedly stood firm to resist Chinese pressure for further concessions. Obama reaffirmed the U.S. commitment to both a one-China policy and the Taiwan Relations Act, and told a news conference that he “welcomed the progress that’s been made on both sides of the Taiwan Strait in reducing tensions and building economic ties.” He specifically applauded the Economic Cooperation Framework Agreement (ECFA) signed last year between Taiwan and China.

Unit: NTD billion

Taiwan and China in early January formally launched the Cross-Strait Economic Cooperation Committee to oversee the implementation of the

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“Early Harvest” list agreed upon under the Economic Cooperation Framework Agreement (ECFA) signed last year, and to coordinate additional ECFA-related contacts. The committee was created by the two sides’ intermediary bodies, Taiwan’s Straits Exchange Foundation and China’s Association for Relations Across the Taiwan Straits. Vice Minister of Economic Affairs Francis Liang will head Taiwan’s workinglevel participation in the new committee.

IS IT CHARITY OR HUMILIATION? Chinese billionaire philanthropist Chen Guangbiao paid a pre-lunar new year visit to Taiwan bearing some NT$500 million in red envelopes to disperse to disadvantaged households. While some opinion leaders hailed his generosity, and crowds of would-be recipients flocked to ask for their share of the handouts, the more common response – and not only from the opposition camp – was indignation and resentment of a mainland interloper flaunting his wealth to the Taiwan “needy.” “This is utterly shameful,” said Kuomintang legislator Lo Shu-lei. “Chen’s high-profile donation manner makes it seem as if our government cannot take good care of its 6

people.” Undaunted, Chen said he hopes to return to Taiwan every year to distribute aid to the disadvantaged. DOMESTIC

LY PASSES 2G HEALTH INSURANCE Despite a walkout by opposition Democratic Progressive Party (DPP) lawmakers, who had their own ideas on how to put the national healthcare system on a sounder financial footing, the Legislative Yuan in early January amended the National Health Insurance Act to revamp the method for calculating premiums. Under the new scheme, individuals with income from investments, rent, or bonuses exceeding

four times their monthly salary will be assessed an additional premium. In addition, the amendment restricts health-insurance coverage for foreign residents to those who have stayed in Taiwan for at least six months. The changes are expected to generate some NT$20.8 billion annually, enough to solidify the current deficit-ridden system. Following passage of the amendment, Health Minister Yaung Chih-liang submitted his resignation. Going out with a blast, Yaung ripped into the watchdog Control Yuan for excessive investigations that interfere with administrative efficiency and filed a lawsuit against a popular TV talk-show host and some of his guests for

HAPPY NEW YEAR — Chinese tycoon Chen Guang-biao (right), accompanied by Taoyuan County Social Affairs Department Director Chang Shu-hui, as he prepares to donate NT$10 million for relief work in the county. photo : cna

allegedly spreading false rumors about the safety of taking flu vaccine. Named as Yaung’s successor was Chiu Wen-Ta, a former hospital superintendent and dean of the School of Public Health at Taipei Medical University. Chiu holds two Ph.D. degrees: in epidemiology from the University of Pittsburgh and in neurology from Japan’s Nihon University.

SEAN LIEN BELIEVES HE WAS THE TARGET The Banciao District Prosecutor’s Office disclosed in late January that it was seeking the death penalty in the case of Lin Cheng-wen, accused of murder, attempted murder and illegal possession of firearms in a December incident in which a bystander was killed and Sean Lien, son of former Vice President and Honorary Kuomintang (KMT) Chairman Lien Chan, was shot through the mouth. The shooting took place at a campaign rally in New Taipei City on the eve of mayoral elections, but it remains unclear whether it was politically motivated. The suspect reportedly has insisted that Lien was not his intended target, saying he mistook Lien for another political figure whose father was involved in a land dispute

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RECUPERATING – Sean Lien, accompanied by his wife, makes his first public appearance since being shot at a campaign rally in December. He believes he was the intended target of the shooter. photo : cna

with Lin’s family. But Lien has refused to accept that it was a case of mistaken identity, and has repeatedly demanded that the authorities uncover the truth behind the episode.

KING PU-TSUNG MOVES TO A NEW ROLE One of President Ma Ying-jeou’s most trust counselors, King Pu-tsung, resigned in mid-January as Secretary-General of the ruling Kuomintang after a flap in which he criticized two KMT Cabinet members for their unwillingness to help the ruling party by running in next year’s legislative elections. But most political observers believed that King’s departure from that post was merely a matter of time, as he will move

over to become campaign manager for Ma’s 2012 presidential reelection bid. Succeeding King as KMT Secretary-General is Presidential Secretary-General Liao Liao-yi, a former interior minister, while Liao’s former position will be taken by Examination Yuan Vice President Wu Chin-lin. I N T E R N AT I O N A L

BEEF AGAIN STALLS U.S. TRADE TALKS Just when it seemed that Trade and Investment Framework Agreement (TIFA) talks between Taiwan and the United States were about to be resumed after being shelved for three years, another complication arose – and once again the problem was Taiwan-

ese restrictions on the import of beef products. This time, the culprit was the discovery of the chemical ractopamine, commonly used by U.S. ranchers to promote leanness in meat, in shipments of U.S. beef. Though banned under Taiwan regulations, the substance was not a priority item for testing before the recent transfer of responsibility for inspections to a new agency, the Taiwan Food & Drug Administration. U.S. officials were angered by the development, arguing that there is no scientific evidence that ractopamine poses any threat to human health. They say Taiwan was preparing in 2007 to set maximum residue levels for the substance, but never followed through. Taiwan’s response was that its regulatory procedures should

be respected, and that more than 100 other countries – including China and the members of the European Union – also ban ractopamine. It was unclear whether the U.S. beef industry would be able to assure supplies of ractopaminefree beef, raising the possibility that U.S. beef exports to Taiwan might be entirely shut down. BUSINESS

AIG SELECTS BUYER FOR NAN SHAN life In the second round of its attempt to divest itself of its 97.57% holding in Taiwan’s Nan Shan Life Insurance Co., the American International Group (AIG) – bailed out by the U.S. government in one of the more controversial moves during the recent financial crisis – signed an

Economic Indicators Unit: US$ Billion Current Account Balance (2010 Q3) 8.99 Foreign Trade Balance (Jan-Dec.) 23.2 New Export Orders (Dec.) 36.57 New Export Orders (Jan.-Dec.) 406.7 Foreign Exchange Reserves (end Jan.) 387.11 Unemployment (Dec.) Overnight Interest Rate (Feb. 1) Economic Growth Rate (2010 QIII)p Change in Industrial Output y-on-y (Dec.)p Change in Industrial Output y-on-y (Jan.-Dec.)p Change in Consumer Price Index y-on-y (Dec.)p Change in Consumer Price Index y-on-y (Jan.-Dec.)p Note:

p: preliminary

4.67% 0.26% 9.80% 18.18% 26.38% 1.25% 0.96%

Year Earlier 8.05 29.3 31.73 322.4 350.71 5.74% 0.102% -0.07% 47.76% -8.08% -0.25% -0.87%

SOURCES: MOEA, DGBAS, CBC, BOFT

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PETROCHEMICAL PROJECT TO BE SCALED BACK The scope of the controversial Kuokuang Petrochemical Park investment project – described by members of the petrochemical industry as vital to the sector’s future but assailed by environmentalists as a threat to the ecosystem – will be scaled down in an effort to increase the likelihood of receiving environmental impact assessment approval, according to the state-owned oil company,

TAIWAN'S JANUARY TRADE FIGURES (YEAR ON YEAR COMPARISON)

TOTAL

1.89 2.42

2.47 2.66

2010

2011

2010

2011

Imports

2011

23.5 25.3

Europe

2.4 2.8

U.S.

2010

19.25 21.7

2011

4.2

2010

2.6

1.59

2011

2.2 3.2

3.69 1.47

4.4

3.9

9.5

2010

ASEAN

Japan

10.2

HK/China

2 2.2

tal-increase needs, but it was widely reported that the authorities were also worried about China Strategic’s alleged close ties with the PRC. A member company of AmCham Taipei, Nan Shan was founded in 1963 and is now the third-largest life insurer in the market by total premiums, with some 4 million policyholders. In another insurance industry development, the Financial Supervisory Commission announced in late January that it would extend the government’s receivership of the insolvent Kuo Hua Life Insurance Co. for another nine months. Earlier, plans for the state-controlled Taiwan Financial Holding Co. to take over Kuo Hua were derailed due to personnel issues.

2.86

agreement in mid-January with the Ruen Chen Investment Holding Co. in a deal valued at US$2.16 billion. Established specifically for the Nan Shan acquisition, Ruen Chen is owned 80% by the Ruentex Group, a Taiwan-based conglomerate, and 20% by footwear manufacturer Pou Chen Corp. AIG chose Ruen Chen over four other bidders, including the Cathay, Chinatrust, and Fubon Financial Holding Companies and a consortium of Primus Financial of Hong Kong and Taiwan’s Goldsun Development and Construction. The deal must receive regulatory approval from both the Investment Commission of the Ministry of Economic Affairs and the Financial Supervisory Commission. Ruen Chen is also facing demands for negotiations on labor issues by the union representing its 33,000 sales agents. After a prolonged review process, the government last year denied such approval when AIG sought to sell Nan Shan to a consortium consisting of Primus Financial and China Strategic Holdings, also of Hong Kong. The stated reason for the rejection was concern over the prospective investors’ long-term commitment and ability to meet capi-

Exports

the CPC Corp. Taiwan, Kuokuang’s largest shareholder. CPC Chairman Chu Shao-hua reported to the Legislative Yuan that the investment amount would be cut from the originally planned NT$900 billion (US$30.87 billion) to NT$600 billion, the oil refinery output decreased from 450,000 barrels a day to 300,000, and the ethylene capacity halved from 2.4 million metric tons a year to 1.2 million. In addition, the total area of the complex would be reduced from 2,600 hectares to 1,900 and the number of production facilities from 41 to 25. The complex was originally slated for Yunlin County, but after failing to receive environmental impact approval at that site, the project destination was moved to the Changhua County coast.

2010

2011

Unit: US$BN Source: BOFT

NUCLEAR START-UP DELAYED AGAIN Construction of the Taiwan Power Company’s fourth nuclear plant has been delayed or suspended so many times over the years that most observers have long lost track of the schedule. In early January, the state-owned utility announced that the date for start-up of commercial operations of the plant’s first unit had been pushed back from December 2011 to late 2012. It was unclear what the new schedule would be for the second generator, which had been slated to start operations in December 2012. Taipower said that although the No. 1 generator was already being tested, continuing problems with the instrumentation and control systems necessitated the latest postponement.

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Issue s

Do Consumers Need a “Bill of Rights?” As if legal protections are insufficient, a drive to create “higher-than-law” standards was launched, but has apparently failed.

n the face of it, establishment of a “Consumer Bill of Rights” seems like a laudable objective. As a result, when the Executive Yuan’s Consumer Protection Commission (CPC) last fall suggested that the business community take responsibility for its creation as a form of self-regulation, two major domestic organizations – the Chinese National Federation of Industries (CNFI), which mainly represents the manufacturing sector, and the General Chamber of Commerce of the ROC for the service sector – signed on to endorse the project. But reasons for concern soon surfaced. For one, the process of drafting the document turned out to be a black box, and was dominated by ardent consumer advocates with scant industry participation. In addition, the broader legal and business implications of creating such a Bill of Rights came under scrutiny. Eventually, around two dozen of the CNFI’s constituent industry associations protested that the “Bill” could have dangerous negative consequences, many of them communicating their dissatisfaction directly to the Federation,. The CPC envisioned the document as constituting a code of corporate moral and social responsibility beyond existing legal obligations. But as the protest letters from the associations pointed out, such “higher-than-law standards” in the Bill of Rights could make the normal legislative process irrelevant, giving the media and consumer NGOs an opportunity to pressure business to follow certain courses of action through arbitrary interpretations of the necessarily vague principles expressed in the Bill. Once the names of “non-compliant” companies would be published, their goods or services might be shunned by consumers. After the issue came to AmCham Taipei’s attention, the Chamber immediately took action. It wrote a letter to Vice Premier Sean Chen in his concurrent capacity as CPC Chairman, cautioning that such a Bill of Rights could wind up damaging Taiwan’s investment climate without bringing any substantial benefit to consumers. Individual AmCham member companies also communicated with their counterparts in local industries to encourage a response by the domestic trade associations. “For AmCham, the main motivation was to help ensure the preservation of rule of law in Taiwan rather than succumbing to social pressure to resolve disputes,” says Chamber President Andrea Wu. “We also realized that the more prominent companies are the most vulnerable targets, since attacks on well-known brands always

消費者憲章真有必要？消費者憲章放眼高於法律的標準，但卻可能干擾現有法令制度，以致業界態度越來越保留。

乍

看之下，制定消費者憲章應屬立意良善。因此，行政院消費者保護委員會去年秋季倡議業界自律的消費者憲章時，國內最主要的兩大工商團體，即「中華民國全國工業總會」（工總）與「中華民國全國商業總會」（商總），都同意為憲張背書。但令人擔憂的現象很快就浮上檯面。其中之一，憲章的起草過程猶如黑箱作業，且由熱情有餘、產業瞭解不足的消保人士主導。此外，憲章對法律與營運面可能造成的衝擊，也成為關切焦點。最後，工總旗下的20幾個會員公會表態，指憲章將引發不可收拾的負面效應；不少會員公會更直接向工總表達他們的不滿。消保會認為，憲章代表企業道德與社會責任，標準應該高於法律。但公會抗議信指出，高於法律的標準將干擾現有法令制度，媒體與消保團體得以片面解讀憲章內容，壓縮企業決策應有的彈性與空間。拒絕配合演出的業者，在消息公開後，或許會成為消費者抵制的對象。台北市美國商會得知此一消息後，立即採取對應行動。商會致函行政院副院長陳冲，希望身兼消保會主委一職的他，能夠瞭解憲章現在的制定方向，不但可能傷害台灣投資環境，也無益於消費者保護。商會各別會員企業也聯絡相關本國業者，希望國內產業公會能夠採取行動。商會執行長吳王小珍表示，「商會的重點在於，確保台灣的法治精神，不受社會壓力的影響」，「我們瞭解，跨國企業將是最可能遭殃的

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Issues get the most sensationalist publicity.” The story appears to have a happy ending. After hearing the objections of its member associations, the CNFI board voted in late January to suspend work on drafting the Bill of Rights until obtaining the consensus of the majority of its members. Given the potential anti-business ramifications of the document, that consensus is almost certain to be to withdraw completely from the project.

一群，因為抵制知名外國品牌總能創造最大的宣傳效果」。事情目前算是有不錯的進展。工總瞭解會員公會的反彈後，理事會在一月下旬作成決議，暫緩起草消費者憲章，以待工總內部建立多數共識。因為憲章潛在的反商氛圍，幾乎可以確定工總最後的共識，將是完全退出起草工作。

—By Don Shapiro

—撰文／沙蕩

Reforming National Health Insurance The new law is a major achievement, but equally important is how it will be implemented.

he Legislative Yuan’s recent passage of provisions creating a “Second Generation National Health Insurance System” (see the Briefs section in this issue) represents a major achievement that should help turn Taiwan’s healthcare program from rapidly mounting deficits to financial stability. The two AmCham Taipei committees most heavily involved in the healthcare sector – Pharmaceuticals and Medical Devices – credit the perseverance of outgoing Health Minister Yaung Chih-liang and his colleagues with seeing the effort through to a conclusion. They also note that the process of considering the legislation was an excellent opportunity for important issues relevant to their industries to be discussed widely among the various stakeholders. For the pharmaceutical sector, a significant development was the inclusion, in Article 62 of the amended law, of a mechanism for establishing a Drug Expenditure Target (DET) system, aimed at creating a more stable pharmaceutical market for the benefit of patients (ensuring their access to innovative new drugs), manufacturers, and government. Under DET, the Bureau of National Health Insurance (BNHI) and industry representatives should annually agree on a growth target for drug expenditures under the NHI system for the coming year. If that target is exceeded, industry commits to returning the difference. In return, the manufacturers hope that the government will abandon its practice of conducting periodic Price Volume Surveys followed by the often sweeping price cuts that have reduced Taiwan’s drug prices to among the lowest in the world – discouraging drug companies from launching their latest products in this market. The rationale for conducting the Price Volume Surveys has been

健保的改革之路二代健保完成修法固然值得慶幸，但實施過程同樣需要持續關注

立

法院最近修正通過「二代健保」相關條文，足以協助全民健保擺脫赤字、恢復財政穩定。台北市美國商會與醫療產業最密切相關的製藥與醫療器材兩委員會，希望藉此機會感謝衛生署前署長楊志良與相關官員的不屈不撓，方能使二代健保終於成真。兩個委員會同感欣慰的是，攸關醫療產業發展的重要議題，在二代健保修法過程中，終於獲得相關各方的充分討論。

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Issue s

to eliminate the price gap caused by the difference between the amount of reimbursement that BNHI pays to the health provider and the generally lower price that the hospital or clinic actually pays to the manufacturer after discount. “Resolution of the price gap remains the leading healthcare reform issue, yet we know from experience that the Price Volume Survey is not an effective tool for resolving the problem,” says Jason O’Neill, president of the International Research-based Pharmaceutical Manufacturers Association (IRPMA). “In fact, the size of the price gap has continued to grow after each price cut,” notes O’Neil. “It is time for a new approach and the DET system now enacted gives us an effective new tool for managing drug expenditures, maximizing patient access to new drugs, and creating a predictable and sustainable environment for the bio-pharmaceutical industry, which the Ma administration has identified as a strategic industry in Taiwan.” IRPMA and the AmCham Pharmaceutical Committee emphasize that crucial to the success of DET under the new law will be the substance of the implementation rules to be adopted. What method should be employed, for example, for industry to pay back the difference if the target is surpassed? “It’s important for industry to be able to participate actively in the process of developing those rules,” says IRPMA COO Carol Cheng. In the meantime, while the new system is being established, the manufacturers hope BNHI will give up its apparent current intention to conduct another Price Volume Survey in line with the old practice, and instead to fully embrace the new direction. Another provision in the new law, Article 42, calls for the introduction of a Health Technology Assessment (HTA) system to monitor the cost-effectiveness of new drugs and medical devices. Both the Pharmaceutical and Medical Device Committees note that given Taiwan’s lack of experience and expertise with this highly complex exercise, the introduction of HTA reviews must be handled gradually and cautiously. Affecting medical devices more specifically is the new Article 45, establishing a “balance billing” system in which patients may have the option to pay an additional amount for access to a device not covered under the NHI reimbursement. This development was welcomed by the AmCham Medical Devices Committee, which in the annual Taiwan White Paper had consistently urged the adoption of such a system. Again the implementation rules will be critical. The Committee recommends that market forces be respected rather than setting an upper limit for the amount of payment. Yet another industry concern is the ability of companies to attend meetings of the reimbursement review panel when applications affecting their products are being discussed. Under Article 41, BNHI is given the right to invite company representatives to attend, but it is not mandatory. “Unless the company can be present to explain fully how the device works and how it contributes to the therapy, it will often be hard for the review committee to reach a knowledgeable decision,” says Medical Device Committee Chairman Daniel Yu. TOPICS will continue to follow these and related issues as the implementation process proceeds.

對製藥產業來說，二代健保最重要的改變是，全民健康保險法第62條納入「藥品費用支出目標」（D E T），型塑穩健藥品市場以兼顧病患、藥廠與政府的需求。D E T制度之下，衛生署中央健康保險局與業界代表每年將為下一年度擬定藥品費用的增加幅度；如實際支出高於預設目標，業界將歸還差額。 D E T上路後，製藥業者希望政府能夠停止藥價調查（PVS）。每次藥價調查之後，健保往往大砍藥品給付價格，造成台灣藥價已為全球最低，更使業者不願引進最新產品。藥價調查的原意是為消弭藥價差。藥價差的成因在於，健保以較高藥品價格給付給醫療院所，但醫院實際上卻靠優惠、折讓以更低價格購入藥品。中華民國開發性製藥研究協會（IRPMA）理事長歐尼爾說，「藥價差當然是健保改革的首要目標之一，但實際經驗已經證明，藥價調查並不是有效解決之道」。歐尼爾說，「事實上，每次藥價調查及給付降低後，價差都只會越變越大」，「政府是該尋找新的解決方法，而D E T制度的確能有效管理藥品支出、增加病患近用新藥的機會，以及為攸關台灣未來發展的生醫產業創造可預期與永續發展的環境」。 IRPMA與美國商會製藥委員會認為，DET制度能否成功，取決於健保法施行細則的具體內容。例如，業者該以何種方式繳回高於預設目標的差額？IRPMA秘書長程馨說，「規範的擬定過程，不能缺少業者的充分參與」。此外，新制正要上路之際，業者希望健保局尊重新制精神，不要再依舊規定執行藥價調查。另一個重要變革是在健保法第42條納入醫療科技評估（HTA），以管控新藥與醫療器材的成本效益。商會製藥與醫療器材委員會都認為，台灣現有經驗與專業不足，最好以漸進、謹慎方式引進高度複雜的HTA制度。健保法第45條納入的差額負擔機制則直接影響醫療器材業；未來，病患將可自付差額以選用健保不給付的特殊材質醫療器材。醫療器材委員會長年在「台灣白皮書」中呼籲，健保應該納入差額負擔機制；對於此一變革，委員會表示歡迎。當然，施行細則仍是關鍵。委員會希望健保局尊重市場機制，不應對給付與差額設定上限。最後，業界仍擔憂，健保給付價格的審定過程，受影響的業者是否能有充分參與機會，因為健保法第41條僅規定，健保局「得」邀廠商參加審查會議。醫療器材委員會主席虞天寅說，「業者必須到場說明器材功效、及其對治療的貢獻，價格審定會議才能在資訊充分的狀況下做成決議」。施行細則擬定過程中，TOPICS雜誌將持續追蹤、報導相關議題。

—撰文／沙蕩

—By Don Shapiro

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commentary Stephen Su is General Director of the Industrial Economics and Knowledge Center (IEK) at the Industrial Technology Research Institute (ITRI).

Taiwan: Regional Manufacturing Headquarters by 2020 BY STEPHEN SU

he inking of the Economic Cooperation Framework Agreement (ECFA) between Taiwan and mainland China on June 29 last year has caught enormous attention from domestic and foreign investors, as the trade pact will not only spur Taiwan’s competitiveness in China, but also boost Taiwan’s pivotal position in the world’s value chains. Many foreign companies with a long-term interest in the growing China market are trying to figure out how to make the best investment in Taiwan as evidenced by the recent BERI report that ranks Taiwan as the fourth best investment location in the world. Since the last decade, mainland China has emerged as the world’s largest manufacturing center and second largest consumption market. This trend is not going to change any time soon. However, China will face many major challenges in its future growth path, including growing disparities between the rich and the poor, rising wages, intensified competition for skilled workers, and continuous currency appreciation. Examining the world’s history of industrial transformation, the baton passing of manufacturing centers has repeated its cycle from Europe to the United States in the early 1900s, then to the rise and fall of Japan from the 1960s through the1980s, then to the export-oriented economic boom of Taiwan from 1970 through the1990s, and lately to the rise of the manufacturing base in China since the early 1990s. 12

It is a common practice that a company’s regional manufacturing headquarters tends be located in the same country as its main production activities. A typical regional manufacturing headquarters is responsible for formulating manufacturing strategy and managing satellite operations in a geographical region to support its company’s business strategy. It is also accountable for the R&D of advanced production systems and processes in a chosen pilot site, before rolling out to other production sites. In this case, it seems like mainland China might be a natural choice for regional manufacturing headquarters for the next 10-20 years. However, contrary to conventional wisdom, Taiwan has a great potential to establish itself as the regional manufacturing headquarters for high-tech and traditional industries by 2020. According to our center’s long-standing studies of Taiwan industry, there are three strong reasons to believe that Taiwan can fulfill such role with competitive qualifications not easily copied or out-dueled by China or other countries: Diversified culture, low-cost manufacturing capabilities, and supportive environment. Diversified culture: Taiwan is one of the few Asian countries with a highly diversified culture, which can be a key asset to help manage international operations. Historically, Taiwan has close ties with China, with the two sides sharing similar culture in language, food, family values, business practices, etc.

Despite their past political conflicts, future trends will drive them towards closer cooperation. Taiwan’s cumulative investment in China has topped US$200 billion; around one million Taiwanese people now live in China; and Taiwanese-owned businesses are employing more than 14 million workers in China, mostly in the manufacturing sector. Similarly, many Taiwanese people have linkages with Southeast Asia through cross-cultural marriages or common cultural connections from Chinese immigrants. In addition to its Chinese roots, Taiwan’s multicultural composition also derives from its past legacy with a variety of with a variety of countries like Portugal, the Netherlands, Japan, and the United States. Such a diversified cultural legacy has made Taiwanese people more accepting of foreign culture, which in turn makes them more suitable for international management when compared to many other Asians. Therefore, historically Taiwanese people have developed a nimble entrepreneurial spirit manifested in their extensive global business connections beyond ethnic Chinese populations. Integrated manufacturing capabilities: Taiwan industries have developed integrated capabilities in low-cost and flexible manufacturing management from years of OEM/ODM experience with multinational brand companies. Many manufacturing companies operate on razor-thin margins whereby sustainable profitability often comes from business scale and nickel-and-dime

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c o m m e n ta ry operations management. They have institutionalized a wealth of capabilities in their business DNA of being lean, flexible, and responsive, while meeting continuous cost-down targets by worldwide customers who are ever increasing their demands. Past experiences learned from their Japan and U.S. partners over the years also helped Taiwanese companies fine-tune their production management skills. In addition, Taiwan companies are able to integrate their strengths in ICT applications with China’s skillful, large labor resources to lower production costs while maintaining world-class quality. Overall, Taiwanese manufacturing operations based in Taiwan or China are still ahead in the cost learning curve when compared to their China counterparts, who are already focusing on brand marketing and outsourcing manufacturing without getting entrenched in manufacturing operations. Supportive environment: Taiwan provides a supportive environment for domestic and foreign companies who set up their regional manufacturing headquarters on the island. Enterprises in Taiwan enjoy low-cost capital as Taiwan’s corporate income tax has been slashed to 17%, comparable to the 17% in Singapore and 16.5% in Hong Kong, but far lower than South Korea’s 22%, China’s 25%, and Japan’s 30%. Taiwan also has a number of industrial parks and technology incubation centers that help germinate entrepreneurial start-ups with innovative products and

services. In addition, Taiwan has either competitive or better support infrastructure in its judicial system, stock exchange, intellectual property protection, and education when compared to China and many other Asian countries. The island is well connected by a variety of transportation networks enabling business and recreational activities to be accessed within one day’s traveling. Some examples of industries in Taiwan with leading companies already having established core competencies as regional manufacturing headquarters include semiconductors (TSMC), bicycles (Giant), computers (Acer), and EMS (Hon Hai). However, Taiwan still has room for improvement to solidify its role as a regional manufacturing headquarters against other countries by 2020. But it needs to act fast with collective effort from government and industry, as its competitors are not sitting still. First, Taiwanese companies must collectively improve their value add, manifested in an improved gross margin, by continuous innovation in their business model or value proposition. For example, how to integrate manufacturing activities with value-add services like channel and logistics management will be of high interest to existing customers. Another value-add example is about providing customized and differentiated total solutions through innovative products and services, as HTC as done in mobile phones. Second, Taiwan companies must

begin to capture their operations management experiences and gradually transcend their core competencies from efficiency and cost base to a knowledgebased platform. Over the years Taiwanese companies have gained a great deal of knowhow in manufacturing operations. Therefore Taiwan needs to use its ICT strengths to combine manufacturing technologies with IT systems to enable more efficient and smarter manufacturing operations such as the unmanned factories that Hon Hai has developed in EMS manufacturing. Lastly, Taiwan still needs to open its doors wider to attracting foreign students and talents, particularly to those from Asian countries including China. Taiwan has established quality education systems and an integrated network of research and science parks. Despite concerns about the impact on local job opportunities, successful examples from the United States and Singapore have shown that proper leverage of foreign talent with diversified capabilities can fill gaps in the domestic resource pool while injecting an entrepreneurial spirit that ultimately creates more businesses and jobs at home. In summary, multinational brand companies have more complementary experiences in innovation, marketing, and integrated services than those of Taiwanese companies. By setting up a regional manufacturing headquarters in Taiwan and forging early partnerships with Taiwanese OEM/ODM companies, they can make good use of Taiwan’s profound capabilities in managing satellite operations. They will also be well suited to use Taiwan as a test site for their products and services before gaining easier access to China and the other Asian markets. It is also wise for foreign investors to hedge their risks in China and take advantage of Taiwan’s closer ties with China and the rest of the Asia during the coming decade of the post-ECFA era. Some examples of industries with good potential to establish regional manufacturing headquarters in Taiwan by 2020, especially if the above-mentioned improvements are put in place, include textiles, precision machine tools, and auto and consumer electronics components.

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Cover Story

COVER STORY

Growing Taiwan’s Banks 讓台灣銀行業脫胎換骨

oo many and too small, the domestic banks find themselves in the most competitive and least profitable market in Asia. Yet the consolidation effort to create fewer but stronger banks appears to have stalled in the face of labor opposition and sensitivity about any favoritism to large private conglomerates. Without renewed consolidation, however, starting with state- owned hold ings, many experts consider that Taiwan will be unable to develop a robust banking system commensurate with its success in the tech sector.

台灣銀行產業的困境在於家數太多、規模太小，導使台灣成為亞洲競爭最烈、獲

BY JAMES PENG

撰文／彭智明

利最差的市場。但政府顧慮工會反對、以及圖利財團的批評，銀行整併一直難有進展。許多專家認為，政府如果不能率先整併公營行庫，誘導新一波產業重整，台灣的銀行業將難以脫胎換骨。

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Banking

aiwan’s technology sector has produced such world-famous companies as Acer, HTC, Hon Hai Precision, and Taiwan Semiconductor Manufacturing Co. (TSMC), but outside the island very few people would be familiar with any of the country’s financial institutions. That weakness is not just a matter of image. Taiwan’s banking industry is considered the least profitable in Asia, a condition attributed to the over-proliferation of banks and the lack of a long-term government strategy to develop the industry. Over the past 10 years, Taiwan banks recorded an average return on assets (ROA) of between 0.2 and 0.3%, the worst in the region. In comparison, the return was 1-1. 5% in advanced markets like Hong Kong and Singapore, and 1.5-2% in developing countries like China and India, according to Taiwan Ratings, the local affiliate of Standard & Poor’s. Last year, due to the robust recovery from the 2008 global financial crisis, the island’s banks enjoyed a somewhat better year, with an ROA of 0.58%, close to the 10-year peak of 0.63% achieved in 2004, the ratings agency said – though it added that even such a good performance was still lower than the international average. “If the performance of Taiwan’s IT (information technology) industry deserves a score of 90%, I would say its banking industry should get only 59,’’ says Andy Chang, director of financial services ratings at Taiwan Ratings.

台灣

Top 10 Most Profitable Taiwan Banks, 2009-2010 Pre-tax Profits in NT$ million

Citibank Taiwan Chinatrust Commercial Bank Mega International Commercial Bank Cathay United Bank Chang Hwa Commercial Bank Taishin International Bank Shanghai Commercial & Savings Bank Land Bank of Taiwan Taiwan Cooperative Bank First Commercial Bank

2010 17,895 15,896 13,833 12,420 11,230 10,800 9,478 9,350 8,830 8,205

2009 6,337 2,656 13,116 11,122 5,714 3,531 7,144 8,173 8,567 2,018 Source: FSC

Several banking executives also gave a rating of below 60. “There are simply too many banks in Taiwan – and where is the government’s mid- and long-term policy on the financial industry?” asks Victor Kuan, chairman of Citibank Taiwan, alluding to reasons why the Taiwan banking industry has had such lackluster performance compared with its Asian counterparts. Through a series of campaigns to spur financial-sector consolidation during the past decade, Taiwan has succeeded in reducing the number of banks from 53 to 37 and has established 15 financial holding companies to allow banks, insurers, and securities brokerages to operate under one umbrella for greater synergy. With an eye to boosting the domes-

發展科技產業的過程中，扶植出許多全球知名企業，如宏碁、宏達電、鴻海與台積電。但台灣的金融機構卻少有類似的全球知名度。問題的癥結不僅是形象包裝，更關鍵的因素在於，銀行家數過多，政府又缺長期發展規劃，導致獲利明顯低於亞洲其他國家。台灣行庫過去十年的資產報酬率（R O A）平均在 0.2%至0.3%之間，表現為亞太最差。隸屬於標準普爾集團的中華信用評等公司指出，同一期間，香港、新加坡等先進市場的資產報酬率約為1%至1.5%，中國與印度等發展中國家則為1.5%至2%。中華信評的資料顯示，台灣經濟2010年出現強勢復甦，拉抬銀行報酬率至0.58%，接近2004年0.63%的十年歷史紀錄。但就算如此，台灣銀行產業的表現仍然低於區域水準。中華信評金融服務評等部副總裁張書評說，「如果台灣資訊產業是90分，我認為銀行業只有59分」。部

tic banking industry by encouraging the wider use of advanced financial products and management practices, the government also approved applications by five foreign banks, including Citibank and Standard Chartered, to expand operations by taking over local banks. More than 40 mergers in the banking sector – most of them involving “community banks” such as credit cooperatives or the credit unions of farmers’ and fishermen’s associations – have been completed since Taiwan started promoting financial consolidation in late 2001. Two of the major deals were Cathay Financial Holding’s acquisition of United World Chinese Commercial Bank in 2003 and Fubon Financial Holding’s acquisition of Taipei Bank in 2005 (Cathay and Fubon are

分銀行主管受訪時也打了不及格的分數。花旗銀行台灣區總裁管國霖認為，台灣銀行產業不如亞洲其他經濟體的原因，簡單來說就是銀行家數太多，而且看不到政府的中長期規劃。政府過去十年持續推動銀行整併，使本國銀行家數由53家減少到37家，並促成15家金融控股公司成立，藉銀行、保險、證券跨業整合以提升綜效。為誘導本國銀行採用先進金融產品與管理技術，政府也允許花旗、渣打等五家外資銀行併購本國銀行。台灣自2001年開始首波金融改革後，已經完成40 多件併購案，其中多數是地區信用合作社，或是農漁會信用部。其中最引人注目的是，國泰金控2003年購買世華聯合商業銀行，以及富邦金控2005年合併台北銀行；而國泰與富邦也成為台灣規模最大的金控。金融重整的著眼點在於，擴大存續行庫的規模，以抗衡區域、甚至是全球競爭對手。

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Cover Story the largest financial groups in the country by market value). The rationale for the consolidation program was to permit some of the major banks to grow to a size where they could be competitive on a regional or even global level. In 2004, the administration of then President Chen Shui-bian set a goal of halving the number of financial holding companies – 14 at that time – within two years to help them compete with foreign rivals. Another stated objective of that “second-round financial reform” was to enable the top three financial holding companies to each reach a market share of at least 10%. So far, only the stateowned Taiwan Financial Holding Co., centered on the huge Bank of Taiwan, has reached that level, with a market share of just slightly over 10% in terms of lending. Banking executives and other finance specialists have praised the reform effort, while calling for further action to see it carried out more completely. “The direction of the financial reform has been correct – it’s just not there yet,” says attorney Thomas McGowan of Russin &Vecchi, who specializes in the financial sector. At the Financial Supervisory Commission (FSC), Vice Chairman Wu Tangchieh explains the industry regulator’s position by saying: “We surely hope for further consolidation, but the premise is to respect the market mechanism, allowing those healthy and competitive banks to join in mergers. We encourage

more consolidation under such circumstance, but we won’t set up a timetable or a target for the number of banks for the consolidation.” In the interest of greater transparency in M&A cases, the FSC last November revised the rules on investment by financial holding companies. The change requires financial holding companies, when investing in other financial institutions, to take sufficient stake to become the target’s controlling shareholder, and to complete the acquisition within three months. “We will review these rules frequently to help banks strengthen their competitiveness,” Wu says. Since President Ma Ying-jeou took office in May 2008, the financial consolidation program has been on hold due to political concerns about protests from labor unions representing bank employees and criticism that the process was mainly benefiting large private conglomerates. The issue became particularly sensitive when prosecutors charged former President Chen with corruption for allegedly taking bribes to facilitate certain acquisition deals.

More consolidation needed Financial industry executives urge the authorities not to let those concerns stand in the way of a revived effort to promote consolidation, starting with government holdings in state-owned or statecontrolled banks, which still account

民進黨政府2004年展開第二波金融改革，目標是在兩年內讓14家金控減半為7家，以提高本國金控的競爭力。另一個目標是讓三家最大的金控，市場佔有率達到10%以上。以台灣銀行為骨幹的台灣金控，目前已經達到此一水準，放款規模已經略為超過市場總值的10%。銀行主管與金融專家認同二次金改，呼籲政府持續推動以完全落實目標。泰運法律事務所法律顧問麥高聞說，「金改的方向正確，只是尚未完全落實」。行政院金融監督管理委員會副主任委員吳當傑在說明產業政策時指出，「我們當然希望金融業進一步整併，但前提是尊重市場機制，以鼓勵體質健全、具競爭力的銀行進行購併。我們樂見滿足此一條件的合併案，但我們不會設定時間表，或是合併後的銀行家數」。為使購併案更加透明，金管會去年11月修改金控

for more than 50% of total assets in the banking industry. “If the government isn’t willing to privatize its state bank stakes, it will be impossible to conduct a meaningful next-round consolidation,” says Yen Ching-chang, chairman and CEO of the Yuanta Financial Holding Co., which owns the island’s largest securities brokerage. While serving as finance minister from 2000 to 2002, Yen oversaw passage of the Financial Holding Company Act and the Financial Institutions Merger Act, two statutes that paved the way for financial consolidation. The case of the Taishin Financial Holding Co. is an example of the current state of limbo in consolidation. Taishin bought a 22.5% stake in the Chang Hwa Commercial Bank in July 2005 to become the bank’s single largest shareholder, and planned to merge it into Taishin. But the Ministry of Finance, which owned – and still owns – about 19% of Chang Hwa Bank, put the move on hold in 2007 after objections were raised by the Chang Hwa employees’ union. At the time, the ministry said the feasibility of the merger required further evaluation. Now, four years later, no further progress has occurred. The overbanking phenomenon has led to a condition of drastic competition among banks in Taiwan–the fiercest in Asia, says Carl Chien, managing director and senior country officer in Taiwan at JPMorgan Chase Bank. “Because of that competition, everyone is using pric-

投資併購規範，要求金控首度轉投資或收購其他金融機構時，必須取得控制性持股以掌握標的企業的經營權，且必須在三個月內進行公開收購或完成投資。吳當傑說，「金管會將持續檢討法規，協助銀行強化競爭力」。馬英九總統2008年五月就任後，金改計畫已陷入停頓，主要擔憂是銀行產業工會的可能反彈，以及獨厚大型財團的批評。前總統陳水扁因二次金改圖利特定企業遭檢方起訴後，金改的政治敏感度又更為升高。

金融整併的必要性金融業主管認為政府不應過度擔憂批評，因為金融改革還是必要，而且最好是由公營行庫作起，畢竟公營行庫佔金融業總資產超過五成。元大金控董事長顏慶章說，「如果政府不願讓公營行庫民營化，台灣就

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Banking

Non-Performing Loan Ratio

Total

Domestic Banks (including Trust & Investment Companies)

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

4.93 5.67 6.20 8.16 6.84 5.00 3.28 2.19 2.08 1.79 1.52 1.14 0.60

4.41 4.96 5.47 7.70 6.39 4.57 2.95 - - - - - -

4.37 4.88 5.34 7.48 6.12 4.33 2.78 2.24 2.13 1.84 1.54 1.15 0.61

Local Branches of Foreign Banks

Credit Cooperatives

1.85 3.20 3.22 3.53 2.36 1.51 1.03 0.75 0.69 0.74 1.20 0.91 0.22

Credit Departments of Farmers' & Fishermen's Associations

7.55 10.54 12.45 11.66 10.34 6.91 3.17 2.09 1.55 1.29 1.24 0.85 0.57

13.10 16.03 17.90 19.33 18.62 17.57 14.46 10.92 8.13 6.25 5.16 4.42 3.15

Source: Financial Supervisory Commission Note: From 2005, the total figures include Trust & Investment Companies and Credit Departments of Farmers' & Fis hermen's Associations

ing to retain market share, and because of the low pricing, the margin is very small,” he notes. “This sets off a vicious cycle. Reducing the number of banks and helping them increase their profits will be the best way to reverse that vicious cycle.” Most Taiwan banks derive about 70 to 80% of their revenues from the spread between deposits and loans, says Citibank’s Kuan, adding that the spread in Taiwan is about 1.3 to 1.4%, much lower than the 3-4% percent in China. “Overbanking, and without creativity in

services, leads only to cutting prices to compete,” he notes. The current level of profits is sufficient to cover the banks’ expenses but not their risk, says Daniel Wu, president of Chinatrust Financial Holding Co., Taiwan’s third-biggest financial company by market value. “The money we’ve earned cannot help us make it through any big financial crisis.” The FSC responds that although Taiwanese banks have low returns, their financial health has improved signifi-

不可能出現有意義的金融改革」。顏慶章曾於2000年至2002年擔任財政部長，其任內完成「金融控股公司法」與「金融機構合併法」立法工作，為後續金改奠定基礎。台新金控的案例，正凸顯出金改停滯的現況。台新 2005年七月購入彰化銀行22.5%股份，成為彰銀最大股東，並計畫將彰銀併入金控集團。但持有彰銀19% 股份的財政部，在彰銀工會反對後，於2007年要求暫緩合併。財政部當時所持理由是購併可行性還需要進一步研究。但四年過去了，合併還是遙遙無期。摩根大通集團台灣區總裁錢國維表示，家數過多導致台灣銀行產業出現亞洲區最激烈的價格戰。他說，「因為競爭激烈，每一家銀行都以降價爭取市場；又因為價格過低，導致獲利空間緊縮」，「這是惡性循環；要避免惡性循環，只有讓銀行減少，以提高獲利率」。

cantly since the Commission was established to act as the regulator in 2004. For example, FSC statistics show that Taiwan banks’ non-performing loan ratio, which stood at 11.76% in April 2002, had fallen last year to only 0.61%, while the average bad-loan coverage ratio had increased from the 14.29% of April 2002 to 158.07%. Last year, Taiwan’s 37 banks reported combined pretax profits of NT$183.2 billion (US$6.2 billion), more than double the NT$83.9 billion of a year earlier. In

花旗的管國霖指出，台灣多數行庫的七、八成獲利都來自存、放款間的利率差，但利差現在只有1.3%至 1.4%，遠低於中國的3%至4%。他說，「過度競爭，加上產品創新不足，大家都只能靠壓低價格」。中國信託金融控股公司總經理吳一揆認為，現在的獲利狀況雖然足以攤付銀行的成本，但遠不足以因應風險，「我們的獲利根本不足以保護企業度過大型金融風暴」。金管會則認為，雖然銀行獲利不高，但在金管會 2004年成立後，銀行的財務體質已經明顯改善。金管會統計顯示，銀行的不良帳款（NPL）比例已經由 2002年4月的11.76%，降到2010年的0.61%；壞帳覆蓋率則由2002年4月的14.29%提高到158.07%。金管會指出，37家本國行庫2010年的總稅前營餘達到1832億新台幣，超過2009年839億的兩倍； 2010年總資產報酬率為0.58%，高於2009年的0.28%

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Cover Story addition, their average ROA in 2010 of 0.58% was up from 0.28% in 2009 and 0.16% in 2008, while their 2010 return on equity (ROE) came to 9.06%, up from 4.49% in 2009 and 2.47% in 2008, the FSC said. As of September 2010, Taiwan banks had an average capital adequacy ratio of 11.79%, higher than the international standard of 8%. “During the financial crisis, several big U.S. banks needed the government to inject funds to rescue them, while the Taiwan government hasn’t had to spend even a dime to rescue our financial institutions,” notes Chang Kuo-ming, deputy director-general of the FSC’s Banking

Bureau. “Although our banks’ profitability is not that outstanding, they have a healthy financial status.” As of the end of November 2010, the 28 foreign banks with branches in Taiwan and the three foreign banks that have upgraded their branches to Taiwan subsidiaries – Citibank, HSBC, and Standard Chartered – had combined pretax profits of NT$32.12 billion, an increase of NT$6.15 billion from the same period a year earlier, with the overdue loan ratio falling to 0.48% from 1.13% a year earlier period, the FSC said. What would be the optimum size for Taiwan’s banking sector? “The most effi-

BROADER PRESENCE — Standard Chartered is one of five international banks that have acquired local banks in the past several years in order to expand their branch network in this market.

cient market would have at most seven to eight financial holding companies and 10 to 20-some banks,” says JPMorgan’s Chien, who is also co-chair of the AmCham-ECCT Joint Banking Committee. “And that’s already a very high number considering Taiwan has a population of only 23 million people.” Chang of Taiwan Ratings suggests that the government first encourage further consolidation to create a muscular player with a market share of 25%. “If a market leader with a one-quarter market share says it needs a profit margin of at least a certain level to do lending,” then it would help set an industry standard, says Chang. “It won’t need to hurt itself by engaging in aggressive pricing.” Should another round of consolidation result in at least two or three dominant players, says Chang, the smaller banks will either survive as niche players or else become marginalized and one day be acquired. Another option, he suggests, is to establish a form of market discipline in pricing among banks to ensure that they reject business when the margin is too low. But for such a mechanism to succeed, he continues, the government will need to take a leading role because the state-run banks account for such a large proportion of the market, while their profitability is lower than the market average. The regulator says it would welcome that development. “We encourage the Bankers Association to conduct market

photo :standard chartered bank

與2008年的0.16%；2010年股權收益率（ROE）也達到9.06%，優於2009年的4.49%與2008年的2.47%。至 2010年9月，本國行庫的資本適足率平均為11.79%，高於國際水準的8%。金管會銀行局副局長張國銘說，「這一波金融風暴發生後，美國不少大型銀行都得靠政府挹注才能免於倒閉，但台灣政府不花一毛錢就能協助銀行過關」，「雖然台灣銀行產業的獲利不是那麼搶眼，但他們卻有健全的財務狀況」。外資銀行部分，目前共有28家外銀在台設立分行，另有花旗、匯豐、渣打等三家外銀已將分行提升為子公司。金管會表示，至2010年11月底，外銀的總稅前營餘為321.2億新台幣，較2009同期增加 61.5億元；逾期放款比例由2009年同期的1.13%降到 0.48%。當被問到台灣銀行產業的適當家數時，摩根大通的

錢國維認為，最有效率的狀況應該是七至八家金控，搭配十至廿家銀行，「以台灣人口僅2300萬來看，這個數量仍然非常飽和」。中華信評的張書評認為，政府金融整併的優先目標，應該是催生市佔率突破25%的重量級業者。他說，「如果由市佔率超過1/4的龍頭帶領，建立存放款間一定水準的利差，將有助建立業界共識，畢竟大型業者沒必要參與價格戰」。張書評認為，如果新一波整併能夠創造出二至三家大型銀行，小型行庫自然會想辦法轉型為利基導向，避免自己遭到邊緣化、成為購併標的。他認為，另一個可行選項是建立價格的市場規範，避免銀行接受利潤過低的案子。但他認為，價格規範要能成功，政府必須發揮帶頭作用，因為公營行庫市佔率高、但獲利卻低於市場水平。金管會樂見類似的正面發展。銀行局的張國銘

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Banking

Number of Financial Institutions (Head Offices)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Domestic Banks

42 47 48 52 53 53 52 50 49 45 42 39 37 37 37

Branches of Credit Cooperatives Foreign Banks

41 46 46 41 39 38 36 36 35 36 33 32 32 32 28

73 64 54 50 48 39 37 35 32 29 28 27 27 26 26

Credit Departments of Farmers' Associations

285 287 287 287 287 260 253 253 254 253 253 261 264 275 276

Credit Departments of Trust & Investment Bills Finance Postal Savings Fishermen's Associations Companies Companies System

27 27 27 27 27 25 25 25 25 25 25 25 25 25 25

5 5 4 3 3 3 3 3 3 2 2 1 - - -

12 14 16 16 16 15 14 14 14 14 12 12 10 10 9

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Source: Central Bank of ROC Note: Fr om December 2008, no Trust & Investment Companies remain in operation

discipline, dissuading the banks from using unreasonably low prices to win lending deals,” says the Banking Bureau’s Chang. “We see this as positive.” Chien of JPMorgan urges more attention to separating ownership and management as a way to promote financial consolidation. He encourages more major shareholders to be “mature enough to let go, allowing professional management accountable to the board to run the

operation,” noting that Taiwan has “a lot of very experienced, capable international managers that can run banks very well, and they are not necessarily the biggest shareholders.”

Foreign banks’ view From a foreign bank’s perspective, “the key to doing well in the Taiwan market, besides having distribution, the

說，「我們歡迎銀行公會擬定市場規範，避免業者以不合理低價爭取放款機會」，「我們認為這是正確的作法」。摩根大通的錢國維則認為，股東歸股東、經營歸經營，才有利金融整併。他認為大股東的心態應該更成熟，放手讓專業管理團隊負責營運，畢竟台灣有非常多經驗豐富、能力足夠的國際經理人，就算不是股東，也能讓銀行營運上軌道。

外商銀行的觀點渣打國際商業銀行台灣區總經理高恕年說，「以外商銀行的角度來看，要在台灣市場成功立足，除了必須要建立通路，推出正確產品，聘用適任員工，還必須要妥善管理成本」。他說，「具備這些條件，我認為合理利潤並非難事；台灣或許不是亞洲最具吸引力

right products, and the right people, is having a very well-managed cost base,” says Sunil Kaushal, president and CEO of Standard Chartered Bank (Taiwan). “With all these, I think a reasonable profit can be made. It may not be the most attractive in Asia, but for the better managed banks, certainly there are good terms to be made, and adding the opportunities opening in China, that makes quite a bet.”

的市場，但管理良好的銀行必然會有不錯商機，更何況還有中國市場的潛在機會，的確值得一試」。過去幾年已經有五家外銀購併本國銀行以拓展通路。渣打2006年九月率先併購台灣行庫，以405億新台幣取得新竹商業銀行。接著是花旗2007年以140億元合併華僑銀行。另外三家外銀則是透過中央存款保險公司購得經營不佳的台灣行庫。歐洲最大的匯豐銀行以從政府獲得475億新台幣、並投入可觀的自有資本，於2007年取得中華商銀。荷蘭銀行2007年也以獲付69億元接手台東區中小企業銀行。東南亞最大的星展銀行則在 2008年獲得台灣政府445億元的資金，以重整財務狀況不佳的寶華銀行。花旗長年以來都是台灣最賺錢的外銀；目前更積極透過購併拓展在台營運，除員工由三千人增加到近五千，分行也由11家增加到65家。台灣區總裁管國

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Cover Story Five foreign banks have acquired local banks to expand their retail operations in Taiwan over the past years. Standard Chartered, which led the charge in September 2006 by engaging in Taiwan’s first-ever takeover by a foreign bank, bought the Hsinchu International Bank for NT$40.5 billion. Citigroup followed in 2007 by acquiring the Bank of Overseas Chinese for about NT$14 billion. Another three foreign banks took over troubled local institutions through the resolution system run by the Central Deposit Insurance Corp., which represents the government in dealing with bank insolvency. HSBC, Europe’s largest bank, in 2007 received NT$47.5 billion

and injected a sizable amount of its own capital to take over the Chinese Bank. ABN Amro of the Netherlands in 2007 was paid NT$6.9 billion to take control of the Taitung Business Bank. And DBS, Southeast Asia’s largest bank, in 2008 received NT$44.5 billion from the Taiwan government to put the distressed Bowa Bank back in shape. Citibank, the most profitable foreign bank in Taiwan for decades, substantially expanded its presence in Taiwan through the acquisition, increasing its manpower from 3,000 to nearly 5,000 employees and raising the number of branches from 11 to 65. “For a foreign bank intending to conduct long-term

READY CASH — For consumers, the wide availability of ATM machines in Taiwan has made banking transactions much more convenient. photo :standard chartered bank

霖說，「對於想要長期經營台灣市場的外資銀行，持續投資、培養人才是必然選擇」。花旗去年也是台灣市場獲利最佳的銀行，稅前營餘179億新台幣，遠高於2009年的63.4億元，而資產報酬率也達到2.1%。政府曾特別表彰花旗對創造就業機會的貢獻；管國霖則表示，花旗今年計畫再增加數百名員工。花旗雖然涉足160個國家，但台灣卻是少數幾個具有完整產品線的市場，從信用卡、資產管理、個人金融，到企業金融與投資金融。渣打合併新竹商銀後，取得桃園與新竹縣市的優勢地位；接著又在2008年完成兩筆合併案，拓展大台北地區的通路。渣打的分行已由三家成長為90家，員工約四千人。台灣區總經理高恕年說，「三年間，我們已經成為外商銀行中通路最廣、房貸最多的，而且我們還將持續成長」，「渣打希望比本國銀行更國際化，比外商銀行更本土化」。渣打2009年稅前虧損

operations in Taiwan, it was a model exercise – continuing to inject capital and cultivate talent,’’ says Kuan. Citi was the most profitable bank in Taiwan last year, with a pretax profit of NT$17.9 billion – up from NT$6.34 billion a year earlier – and an ROA of 2.1%. It received recognition from the cabinet for job creation, and Kuan notes that “we plan to hire several hundred more workers here this year.” Although Citi has operations in 160 countries, Taiwan is one of the relatively few markets where it offers a full range of banking services, including credit cards, wealth management, corporate banking, investment banking, and private banking. Standard Chartered, after gaining strong coverage in Taoyuan and Hsinchu Counties through the Hsinchu International Bank merger, made two more acquisitions in 2008 to expand its presence in the Taipei area. It has thus grown from just three to 90 branches, and now employs a workforce of 4,000. “In three years, we have built the biggest network and largest mortgage portfolio in Taiwan among international banks, and we are continuing to grow our market share,” says Kaushal. “We want to be more international than any local bank, and more local than any international bank.” Standard Chartered posted a pretax profit of NT$5.45 billion last year (against a loss of NT$4.76 billion a year earlier), which Kaushal says makes it the second-most-profitable international

47.6億新台幣，但2010年已有稅前盈餘54.5億元；高恕年指出，渣打已成為台灣市場獲利第二高的外銀。中信金控48%的股份為國外投資人持有，包括摩根士丹利間接持有的4.02%股份。中信金控在國內有 145家分行，海外則為14個國家的72家分行。中信的獲利約15%來自海外。總經理吳一揆說，「解決獲利不佳的問題，要不就是購併，要不就是國際化」。他指出，由於國際存放款利差擴大，中信希望五年內將海外獲利的比例提高到35%。中信金控2009年稅前營餘為26.6億新台幣，2010 年成長到159億元，已是台灣所有銀行中獲利第二高的。2010年的資產報酬率為0.97%。中信近年積極購併，包括2003年的萬通商業銀行，2004年的鳳山信用合作社，2007年的花蓮區中小企業銀行，分行家數已增加31家到145家。

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Banking

BACK ON TOP — Citibank was Taiwan’s most profitable bank in 2010 (and the only foreign bank in the top 10) after being in sixth place the year before. photo :citibank

bank on the island. Chinatrust Financial, which is about 48% owned by foreign investors (including a 4.02% stake by Morgan Stanley through a fund it controls), now has 72 overseas branches in 14 countries in addition to the 145 branches in Taiwan. About 15% of its revenue comes from overseas. “You either consolidate or go international – the two ways to walk out of the unprofitability problem,” says Daniel Wu. He adds that the company aims to increase the proportion of overseas revenue to 35% of the total within five years, to take advantage of the much better spread available internationally.

Last year, Chinatrust posted a pretax profit of NT$15.9 billion, up from NT$2.66 billion a year earlier and making it the second-most-profitable lender among all Taiwan banks. It posted an ROA of 0.97% for 2010. The company took over the depressed Enterprise Bank of Hualien in 2007, following earlier acquisitions of Grand Commercial Bank in 2003 and FengShan Corp. in 2004, increasing its branches by 31 to 145.

Differential treatment Considering the disparity in performance among banks, executives from

因材施政外銀主管認為，各銀行體質不一，政府應該客觀評估風險與獲利能力後，制定不同法規標準,力行差異化管理；不論體質健全與否，都以同樣標準要求，只會限制優質銀行的發展潛力。花旗的管國霖認為，優質銀行應該獲得鼓勵，不論是更多創新業務的空間，或是核發更多執照；而體質不佳的金融機構，政府應該要求增資、施以更嚴格監督，甚至是要求它們退出市場。他說，「這是我們的期待，我們現在的資產報酬率只有國際水準的1/3」。金管會副主委吳當傑坦言，銀行獲利能利的確還有很大改進空間，而金管會樂於聆聽業者意見，瞭解具體的改善措施。他說，金管會已經在以差異化管理要求不同體質的銀行，讓體質良好的銀行可以依發展需要開辦新業務。同時，金管會也正在協助

the foreign banks have tended to urge the government to adopt different regulatory standards according to objective evaluations of the banks’ risks and profitability – rather than constraining development of the better banks by holding them to the same restrictions imposed on their weaker counterparts. “Try to encourage the good banks, allowing them more new businesses and giving them more licenses,” Citibank’s Kuan suggests, while asking uncompetitive institutions to increase their capital, accept tighter supervision, or even withdraw from the market. “This is what we expect, now that our ROA is just one-third that of the international standard.” Conceding that there is much room for improvement in the profitability of Taiwan’s banks, the FSC’s Wu says “we are happy to listen to voices from the banks on how we can take practical action to help them become more profitable.” The regulator is already seeking to apply different supervisory standards to stronger and weaker banks, “allowing good banks to apply for new businesses to help them grow,” he maintains. Wu says the regulator is also seeking to help banks expand overseas, including the opening of networks in China, and to allow banks greater latitude in investing in overseas securities. At the same time, Wu stresses the importance of “reasonable” supervision. “After the global financial crisis, countries such as European nations and the United

業者開拓中國等海外市場，並放寬銀行投資海外證券的限制。但吳當傑也強調合理監督的必要性。他說，「金融風暴後，歐盟與美國都學到教訓，由放任轉向監督」，「我們要求銀行引進新產品時必須全面考量風險、並充分告知客戶，這是為了替銀行與客戶創造雙贏」。外銀目前的主要擔憂之一是，金管會要求將資料處理部門移進台灣，以接受更嚴格的監督管理。多數外銀目前利用香港、新加坡或印度的區域據點進行資料處理，除能達成經濟規模，也能確保資金足以採購必要系統與軟體，以提供更好的資料保護。要求匿名的銀行主管說，「這將嚴重影響外銀現有營運模式，也會大幅增加成本」，「政府應該鼓勵外銀以最有效的方式利用資源，而非強迫外銀重新配置資源、排擠能對經濟產生貢獻的投資」。

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Cover Story States have learned a lesson and have changed from de-regulation to re-regulation,” he told TOPICS. “We require the banks when introducing new business to consider risks and fully inform their clients. This is to create a win-win situation for banks and their clients.” A current major concern for the foreign banks has been indications that the regulator plans to ask them to locate their data processing operations in Taiwan for tighter supervisory control. Most of these banks now

utilize regional offshore hubs in places such as Hong Kong, Singapore, or India for that service in an effort to achieve efficiencies of scale and enable sufficient investment in systems and software to assure better protection of data in case of any disaster. “This change would pose a big conflict to the current operational models of the international banks, and it would be extremely costly,” says one executive, who asked not to be named. “The government should encourage foreign

banks to do the right thing to utilize their assets in the most efficient way, not force them to reallocate those assets and crowd out investments that can really contribute to the local economy.” Another problem for the foreign banks in Taiwan is that the choice of investment products they can offer to customers is quite limited. To broaden that mix, the banks have sought to introduce various offshore investment products to the Taiwan market, but rigid local regulations have presented

Taiwan Banks Eye China Market

s a lifeline to help rescue themselves from the low-profitability environment in Taiwan, the domestic banks have high hopes for expansion into neighboring China, the world’s second-largest economy, following the signing of three cross-Strait memorandums of understanding (MOUs) for financial ties and the Economic Cooperation Framework Agreement (ECFA). But there is wide awareness that it will take some time before the financial contribution from mainland operations can be realized. The three financial supervisory MOUs signed by Taiwan and China in November 2009 allow cross-Strait ties in information sharing, information confidentiality, financial examinations, liaison, and crisis management in the wake of the global financial tsunami. ECFA, inked in June last year, covered “early harvest” benefits in financial services, enabling Taiwanese banks to obtain more favorable treatment than that provided to foreign banks and opening the way for them to serve Taiwanese clients in China. “I’m very bullish,” says Carl Chien, managing director and senor Taiwan country officer at JPMorgan Chase Bank about the potential in China for the local banks. “I think Taiwan banks will be more competitive there than international banks because China is treating them like their own people, giving them a lot of privileges.” Taiwan has approved nine Taiwanese banks to upgrade their representative offices in China into branches, including First Commercial Bank, Cathay United Bank, Chang Hwa Commercial Bank, Taiwan Cooperative Bank, Land Bank of Taiwan, Hua Nan Commercial Bank, Chinatrust Commercial Bank, Mega International Commercial Bank, and Bank of Taiwan, with the first six having recently done so. The FSC has approved three Chinese banks to set up rep offices in Taiwan: the Bank of China, Bank of Communications, and China Merchants Bank. The two sides are expected to conduct a second round of ECFA negotiations in the first half of this year, and Taiwanese banks have high expectations that China will grant them even better treatment than the “most-favored nation (MFN)” status accorded to foreign banks under the World Trade Organization (WTO) rules when China entered the trade body a decade ago. “If the opening of cross-Strait ties is as

smooth as expected, Taiwan banks should be able to grab a foothold in the mainland market because of the creative talent trained in Taiwan,” says Chinatrust Financial president Daniel Wu. He regards the highly competitive market caused by overbanking in Taiwan as a crucible that has helped cultivate a great many capable and resourceful bankers. Chinatrust had hoped to start by setting up a bank subsidiary for faster expansion, but the result of cross-Strait negotiations was that it could only upgrade its Beijing representative office to a branch for now. Wu says he hopes that further talks between the two governments will enable Chinatrust to take a three-pronged approach – establishing branches, creating a subsidiary, and buying a stake in a Chinese bank – since “the market is so big and networking is very important.” As a subsidiary, the bank would be allowed to engage in retail business by taking deposits of less than 1 million yuan, something that is not permitted for a branch. According to Wu, the minimum capital is 1 billion yuan for a subsidiary and 200 million yuan for a branch. If it gains permission, Chinatrust would capitalize its subsidiary at 3.2 billion yuan (US$486 million), whereas its branch will have capital of 800 million yuan. “Such a small capitalization can’t meet the needs of our larger clients, and they still are seeking services from the bigger Chinese banks,” says Wu. Chien of JPMorgan says that most Taiwanese financial holding companies have similarly long ago positioned themselves for expanding into China. “They all have been there for so long that all the people they should know, they already know, and all the due diligence they should do, they have already done,” he notes. “Once you say ‘go ahead,’ the explosive power will be incredible.” He expects that Taiwan’s holding companies could start receiving some profit contribution from China next year or the year after. “It all depends on the political climate,” he says – “both the amount of good will the Chinese leadership wishes to show and how the Taiwan government reciprocates.” Taiwan’s Financial Supervisory Commission (FSC) says it will seek to help the Taiwanese banks obtain favorable treatment in China, such as relaxation of restrictions on setting up cross-province or cross-city

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Banking

a barrier. “On one side, you want to protect investors in Taiwan, so therefore you do need regulations, but on the other hand, you don’t want to totally limit the types of products available,” says Godwin Chang, Taiwan chief country officer at Societe Generale. “It’s a question of striking a balance.” After the financial crisis, the regulator in effect shut down the structured note market, and it has just recently begun to revamp it, but is now requiring each individual structured note prod-

uct to undergo an onerous approval process. The regulator is urging the financial institutions to provide products that give better returns to investors, but at the same time offer very low risk, in fact with 100% principal guaranteed. “If there is no risk, how can you create a product that is interesting to investors?” asks a foreign-bank executive on condition of anonymity. “If that’s the requirement, then the banks can’t do it because it doesn’t make any sense.” In addition, the foreign banks are

sub-branches. “We’ll try our best in negotiations with the mainland side, and we have high expectations,” says Vice Chairman Wu Tangchieh. “But we can’t promise that the result will fully meet the expectations of Taiwan banks. The bankers themselves must be careful about the risks in investing in China, strengthening their internal controls while expanding operations there.” Chang Kuo-ming, deputy director-general of the FSC’s Banking Bureau, urges the Taiwan banks to submit their requests regarding operations in China to the Bankers Association for discussion so as to arrive at a consensus on priorities. “ECFA surely is full of opportunities for Taiwan businesses because of the opening of new channels and tariff reduction, helping foreign investors to use Taiwan as a gateway to enter China,” notes Victor Kuan, chairman of Citibank Taiwan. “Going to China is an opportunity, but it depends on how quickly China will open its door and what kind of operating conditions it will give you. Foreign banks have already entered the mainland market, so the Taiwan banks are already latecomers. Under the ECFA agreement, Taiwan bank branches in China must register profits for one year before being allowed to conduct renminbi business, and they will be limited to serving corporate clients. Andy Chang, director of financial services ratings at Taiwan Ratings, considers that it will take Taiwan banks at least three years in China before their operations are profitable. “While the business potential in China is huge, it’s also a very competitive market,” he notes. “You’re competing with their four big state-run banks which control an over 50% market share. Why will clients want to do business with you, and not the big four?’’ Taiwan banks’ being approved to set up branches in China are already receiving better treatment than most international banks in setting up branches and doing renminbi businesses, but the best treatment so far has been accorded Hong Kong’s Bank of East Asia, which entered China via the Close Economic Partnership Agreement (CEPA) structure, Chang says. “The Bank of East Asia has seen its China operations contributing more than 50% of its profits, but it takes at least seven years to reach such a stage.” Godwin Chang, chief Taiwan country officer at Societe Generale, agrees that the process of gaining acceptance in the China market can be rather slow. “Our bank has been locally incorporated in China for

suggesting that Taiwan adopt what is called a “safe harbor” system for the provision of cross-border financial services, allowing offshore investment bankers to serve large, sophisticated corporate investors in Taiwan with offshore products. “The foreign financial community has been told that if you physically come to Taiwan to provide crossborder service, but you either must do it inside your branch, or else you must do everything truly outside the country, and there is no in-between,’’ says McGowan

ENTERING CHINA — The Banking Bureau of the Financial Supervisory Commission recently held a meeting with local bankers to discuss regulations impacting cross-Strait banking operations. photo :cna

some three years, but before banks can be really at full scale in China could be four to five years.” Citibank’s Kuan urges the Taiwan regulator to take note of a recent major change: China’s active promotion of the internationalization of the yuan by allowing the testing of a cross-border clearing business in 20 coastal cities, with Hong Kong as the center, since the middle of last year. Previously, Taiwanese businesses in China used U.S. dollars for all export transactions with the United States, but as domestic demand has risen in China, the authorities there see an increasing need for the clearing of yuan, in addition to U.S. dollars. Between the first quarter of last year and the fourth quarter, the volume of clearance of yuan increased eight-fold, says Kuan, and the trend is forcing Taiwan businesses to open accounts in Hong Kong for the clearing of yuan earned from their trading activity. This threat to Taiwan banks could be turned into a major business opportunity if the Taiwan government were to allow the OBUs (offshore banking units) of Taiwanese banks to engage in the clearing of yuan, Kuan says. — By James Peng

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Cover Story of Russin & Vecchi. “That is inconsistent with other countries, which have the safeharbor type of regulation.” The government’s stricter attitude toward cross-border services appears to be in reaction – critics would say an over-reaction – to the financial crisis of a few years back. In order to draw very clear lines of responsibility, the regulator would limit interaction between international financial institutions and Taiwan customers to contact by locally licensed entities. Yet those local representatives often lack the expertise possessed by their offshore colleagues in particular financial products and markets. A s a s a f e - h a r b o r- t y p e s o l u t i o n , McGowan suggests the use of “chaperones,” meaning that someone from the bank’s local office must accompany the visiting foreign experts when they meet clients in Taiwan, and that someone in the local office must take responsibility for the foreign experts’ behavior. Given what seems to be an increasing number of such problems, many foreign

banking executives urge the regulator to engage in more frequent or higher-level communication with the industry regarding potential threats and development opportunities, so as to bring about policies that assure consistent and predictable operations for the banks. “If not, foreign companies will feel highly unsafe, and may slow down their investment here or even withdraw from Taiwan,” says one knowledgeable source. In response to such sentiments, the FSC’s Wu notes that Commission Chairman Chen Yuh-chang last year engaged in rounds of dialogue with all the chief executives of financial holding companies, banks, insurers, and securities brokerages, and that its Banking Bureau chief has been meeting the presidents of local banks every quarter and executives from AmCham-ECCT Joint Banking Committee at least once a year. “Our door is open whenever banks need more communication,” he says. “We fully agree with the establishment of a communication platform and hope the

外銀的另一個難處是，能提供給客戶的投資產品非常有限。外銀當然希望引進更多海外投資商品，但卻受限於嚴格的法規管制。法國興業銀行台灣區總經理張建西說，「為了保護台灣投資人，當然需要管制；但從另一方面來說，不應該過度限制可以上架的產品」，「因此，政府必須能取得管制與開放的平衡點」。金融危機爆發後，連動式債券市場形同全面停擺，直到最近才逐漸恢復；但金管會現在要求每款連動債都需經過非常嚴格的審核程序。金管會的要求是，金融機構推出的產品必須具備良好投資報酬率，但風險必須很低，基本上必須百分之百保本。要求匿名的外銀主管抱怨，「沒有風險的產品，怎麼會有足以吸引投資人的報酬率？如果金管會堅持，沒有銀行會賣，因為根本不合邏輯」。此外，外銀希望跨境金融服務能有安全港條款，允許境外投資銀行提供海外金融產品給國內大型且專業的投資機構。泰運法律事務所的麥高聞說，「外資金融圈被告知的訊息是，如果業務員親自來到台灣提供跨境服務，最好是完全在分行內進行，否則就乾脆別來台灣、在國外進行就好；兩種選項之間完全沒有灰色地帶」，「這跟其他國家的做法完全不同，因為他們會有安全港條款」。政府對跨境服務的態度，反映對前幾年金融風暴的擔憂；但批評者認為似乎有點太過頭了。為釐清責任，金管會寧可限制跨國金融機構與台灣客戶的直接互動，要求由該外銀國內合格行員代為聯繫客戶。但該國內行員

dialogues can really meet the practical needs of bankers.” As important as the financial sector always is to national economic development, Taiwan’s banking industry has long been positioned as a supporting player, not a prime focus of policymakers’ attention. In that respect, the domestic situation is quite different from Hong Kong and Singapore, which regard their banks as a key strategic industry, says Chris Lee, banking analyst at Taiwan Ratings. For some years, the Taiwan government stressed the objective of building the island into a regional financial center, particularly for asset management and fund-raising. That goal has no longer been mentioned in recent years, especially since the global financial crisis. But without a vision and a strategy for attaining it, say many in the financial industry, Taiwan’s banking sector will be hard put to elevate itself to the same level of accomplishment as has been achieved in other areas of the economy.

對特定產品與市場的瞭解程度，往往不如其外國同事。泰運法律事務所的麥高聞認為，政府可以建立類似安全港條款的「伴護機制」，意即台灣分行必須指派員工陪同國外專家拜訪台灣客戶，而分行員工必須為國外專家的言行負責。由於類似狀況越來越頻繁，許多外銀主管呼籲，金管會應該更常與業者溝通，或是舉行高階會談，以瞭解潛在阻礙與改善機會，確保政策的一致性與可預測性。一位主管說，「缺少溝通對話，外銀的不安全感會很高，以致減緩對台投資，甚至乾脆退出台灣市場」。金管會副主委吳當傑回應指出，主委陳裕璋去年多次會見金控、銀行、保險與證券負責人；銀行局長每季都會與本國銀行董事長座談，並且與美、歐商會聯合銀行委員會主要成員每年至少會面一次。他說，「只要銀行需要表達意見，金管會的大門永遠敞開」，「我們完全認同建立溝通平台的想法，更希望溝通對話能真正切合銀行業的需要」。金融產業攸關國家經濟發展，但台灣的銀行產業長期以來只被當成配角，得不到政府關愛的眼神。中華信評的金融服務評等部協理李明泰說，台灣的狀況非常不同於香港、新加坡，兩地都將銀行當成核心策略產業。台灣過去一直希望成為區域金融中心，特別是資產管理與資金募集等領域。但近幾年，特別是金融風暴之後，官員已經不太提及此一目標。許多金融業者認為，欠缺區域金融中心的願景與策略，台灣的銀行產業將難以更上層樓，與其他關產業齊頭並進。

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taiwan busines s

Working Out a Business Strategy Taiwan has seen both successes and failures in the fitness club market since the first major foreign brand set up here in 1999.

Story and Photos by Timothy Ferry

he newest World Gym location to open in Taiwan – the recently relocated Main Station club – is a subterranean neon-lit den that invokes a disco more than a fitness center. The lighting is low and moody, tinted with purple and pink fluorescence. The music is new and edgy, somewhere between hip-hop and house. Fit women exercise on technologically advanced aerobics machines, while muscular bodybuilders work out on complicated apparatus that resemble futuristic torture devices more than exercise machines. Posters of beautiful people in states of presumably post-exercise euphoria decorate the walls. This heady infusion of fitness and glamour, marking the upper tiers of the fitness market across Asia, was first introduced to the Taiwan market in 1999 by California Fitness, which had already seen significant success in Hong Kong and Singapore. It made an instant splash in the Taiwan market. California Fitness opened its first club in Taiwan in 1999. Occupying the first several floors in one of Taipei’s busiest shopping districts along ZhongXiao East Road near DunHua North Road, the club featured a dee-jay spinning music in a booth right off the sidewalk and neon-lit, nightclub-like ambience. Attractive sales reps roamed outside the club inviting young shoppers and club-goers for a conversation in their

plush ground floor lounge – not just about a gym membership, but gaining a sophisticated, luxurious brand experience. Overnight, California Fitness became the most talked-about fitness topic for the young trendsetters in Taiwan. “I think they were trying to make a splash, to get the industry into the spotlight and build awareness overnight – and it worked very well,” says John Carracio, president and CEO of World Gym Taiwan, which entered the Taiwan market in 2001, two years after California Fitness. California Fitness quickly opened up several more clubs, three in 2001 alone, in many of Taipei’s most upscale neighborhoods. They eventually operated five clubs in Taipei and one in Taichung in prominent locations such as Taipei Main Station and the Daan MRT Station. Yet little more than a decade later, California Fitness exited Taiwan, selling off all its clubs to a rival to focus on other Asian markets. The company said in a press release: “The sale will enable California Fitness to focus on key Asian markets where it is an industry leader, and to support markets which have significant long-term growth opportunities.” Along with the messy demise of former market-leader Alexander Health Clubs Group in 2007, California Fitness’s

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departure in September 2010 left the upper-tier of the fitness industry squarely in the hands of what had been the underdog, World Gym Taiwan. A franchise of the second-largest fitness chain in the world, World Gym Taiwan opened its first club in Taichung in 2001, and experienced much slower growth than the other two major chains. It didn’t open a second club, also in Taichung, until 2004, but built on this success to eventually enter the southern cities of Kaohsiung and Tainan before finally arriving in the Taipei market in 2008. In September 2010, it announced the takeover of California Fitness’s entire Taiwan operation, encompassing six clubs and 40,000 members. The differing fates of these three major players reveal much about how different business strategies worked in changing economic conditions. While California Fitness generated instant publicity and notable success early in its history in Taiwan, and Alexander led in market share with over 100,000 members, both ventures ultimately failed. Most analysts point to a business model that stressed generating growth through an over-reliance on paid-in-full memberships. World Gym, on the other hand, followed a strategy of starting with second-tier markets and operating a subscription-based business model that at first limited growth but ultimately triumphed. California Fitness and World Gym both entered the Asian market at the right time. The Asian tigers – Taiwan, South Korea, Hong Kong, and Singapore – were all experiencing rapid growth at the time. In 1998, according to website TradingEconomics.com, Singapore had nominal per capita GDP of US$20,000. But with strong annual economic growth averaging around 7%, this figure rose to nearly US$30,000 in 2008 – US$50,000 in purchasing power parity terms. Hong Kong and South Korea saw similar rises; South Korea’s nominal per capita income nearly doubled in the same decade, from barely US$10,000 in 1998 to nearly US$18,000 in 2008. According to John Carracio of World Gym, this meant that “the people were ready for fitness in terms of incomes and

home ownerships, but fitness memberships were almost nonexistent as there were very few fitness clubs in the market.” Seeing a potential demand for U.S.-style mega-gyms, 24 Hour Fitness introduced its California Fitness brand into Hong Kong’s Central district in 1996, and was an immediate success. The company, the world’s largest privately held fitness firm with over 400 clubs worldwide, quickly expanded in Hong Kong and later to Singapore and China. Currently, California Fitness operates 16 clubs in Asia, including 10 in Hong Kong, four in Singapore, and two in China.

Demand for U.S. brands Carracio attributes at least some of California’s success to an overall “pent-up demand for U.S. brands” across Asia during the 90s. He includes TGIF and Ruby Tuesdays as examples of U.S. retail and service brands that found success in many Asian markets including Taiwan. California Fitness rode that wave by promoting what might be considered a Hollywood image of American fitness clubs. It “captured that desire to be in a cool place with a lot of music, neon,” says Carracio, instead of mimicking the real experience of fitness centers in the United States, “where clubs are pretty bare bones.” This strategy, however, came at a cost. Presenting the right image required not just the right look but the right location, and during the early part of the last decade those addresses didn’t come cheap. The location at the intersection of ZhongXiao and DunHua, for example, cost the company more than NT$10 million (US$330,000) a month. California’s Main Station club, meanwhile, ran the company another NT$7 million a month. Although California Fitness was able to handle these costs with the backing of a strong owner, such costs became more of a challenge for rival Alexander Health Clubs, founded by Candy Tang in 1982. One of the first modern health clubs in Taiwan, the company had in many ways pioneered the

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industry locally. It was considered a great success, and its founder was hailed as a model for female entrepreneurs. The company even expanded into China. But while Alexander had brought modern style and sophistication to the fitness industry in Taiwan, it quickly found itself out-hipped by upstart California Fitness. Alexander responded by competing with California Fitness head-on, expanding operations into some of Taipei’s swankiest locales, including three in the ultra-expensive Xinyi district alone. By 2007, Alexander had amassed 22 clubs and had nearly 100,000 members. “California came into the market and stole their limelight,” says Carracio. Alexander “tried to follow, and got in over their heads.” At the time, though, repositioning themselves as a luxury service may have made sense. Consumer spending was growing tremendously in those years, fueled by that other exciting element of American consumerism besides branding: credit card spending. According to a report by the Bank for International Settlement, total credit card usage increased by 200-500% in many Asian markets between 1998 and 2006. As a share of private consumption expenditure, card purchases reached 10-20% in many Asian economies. The youthful, cool, exciting, and affluent image that the major fitness brands promoted played right into this market. But by 2006, many Taiwanese consumers came to the realization that they were heavily indebted. A “tsunami,” as it was dubbed in Taiwan, of credit card defaults surged over the market. Consumers suddenly had a lot less money than they thought they had, and luxury services such as fitness clubs were among the worst hit. The collapse of the consumer credit card market was a one-two punch for Alexander. It had originally operated on monthly subscriptions, but increasingly turned to a paidin-full (PIF) membership model to offset lost income from members no longer paying their monthly dues. The strategy had a Ponzi scheme quality to it. With PIF, consumers pay significant sums – NT$50,000 or more – for

“lifetime” memberships at the beginning of the contract. The firm gets the cash upfront, but trades off future cash flow. Eric Lin, master licensee for Curves, another U.S.-based chain operating in Taiwan that rejects the PIF business model, says paid-in-full means “essentially you are borrowing from your own customers.” In a PIF business model, further cash flow can only be generated by attracting more memberships. But with credit drying up, fewer people were in the market for lifetime memberships by the end of 2006. Also, legislation at the time suddenly required fixed-term contracts, eliminating open-ended lifetime memberships and further dampening the market. As widely reported in the media at the time, Alexander’s operating income dropped from around NT$200 million to less than NT$80 million. Tang instituted corporate cutbacks, sought the investment of business partners, and sold share options in the Alexander clubs in China for NT$252 million, but it wasn’t enough to rescue the firm. On December 11, 2007, Alexander abruptly shut down, leaving its tens of thousands of members in the lurch. The aftershocks of this collapse were powerful and widespread. The media immediately accused the company of fraud, with legislators charging that nearly 9,000 new members had signed and paid for long-term memberships totaling NT$244 million after August 1, by which time they said it should have been clear the company couldn’t survive. Candy Tang herself was court ordered not to leave Taiwan, and was eventually indicted on charges of fraud and breach of trust. She was eventually convicted and fined, and the case is currently on appeal.

Broader implications But the episode also led to further questions about the viability of the whole fitness business in a credit-constricted market. The government acted swiftly to shore up confidence in the industry by enacting strict new laws regulating the use of paid-in-full memberships. The most impactful

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of these were rules that require health clubs to put 50% of the money obtained from the sale of long-term gym memberships into escrow accounts. Suddenly a business model focused on long-term memberships seemed far less attractive to fitness clubs, even for deep-pocketed California Fitness. Industry insiders speculate that one of the reasons why California Fitness abandoned the Taiwan market was that these new obligations show up as debt on a company’s financial statement. 24 Hour Fitness was acquired by private equity firm Forstman, Little and Co. in 2005 in a leveraged buyout for US$1.6 billion. According to sources close to the company, it stands to reason that California Fitness will one day seek public listing, and that cleaning up its books of outstanding debt would be a powerful motivator to exit Taiwan. Meanwhile, as Alexander and California Fitness engaged in what amounted to a war of attrition in Taipei, World Gym chose another route, heading first to central and then southern Taiwan before finally coming to Taipei. The strategy, while perhaps counterintuitive as the company garnered far less media attention in this second-tier market, ultimately proved successful. Carracio attributes this success to a business model that fit the market and allowed for changing market conditions. He compares World Gym’s subscription model – the same model it uses in the United States – as similar to a cellphone contract. “You get this facility – all of the hardware – but you’re obligated to pay 100 U.S. bucks per month.” He says this model has a number of distinct benefits, not the least of which is that it appeals to investors since “you have a steady stream of income – you have contracts in place.” Also, the low subscription rate allows consumers to feel they have available cash that they can then spend on add-ons like personal training and supplements. Further, going to second-tier cities and less-expensive locations allowed them to manage costs even during the credit card crunch and the more recent economic downturn. By 2010, World Gym had actually exceeded California both in terms of locations and memberships with 50,000 members and nine locations. So when World Gym took over California Fitness’s locations and 40,000 memberships, they immediately took steps to incorporate the company’s operations into their own. Now, 90% of their members are on monthly subscription, and the club renegotiated rents on the new clubs and in some cases moved the location to get a better deal. For example, the rent contract for the ZhongXiao branch, the flagship of the California brand, was renegotiated from NT$10 million monthly fee to a more manageable NT$7 million. The Main Station club was moved a block east, saving the company

another NT$3 million in rent. World Gym now has 90,000 mostly dues-paying members, each paying from NT$1,500 to NT$2,000 per month, and the company still feels it has significant room for growth. It says it hopes to add another 18 clubs by 2015 to reach a total of 30. In addition, Carracio has plans for smaller workout centers, World Gym Express, aimed at busy people not interested in attending aerobics classes. World Gym isn’t the only U.S.b a s e d p l a y e r n o w i n t h e Ta i w a n market, though. The above-mentioned Curves, based in Dallas, Texas, has also enjoyed notable success in this market, again by avoiding head-tohead competition with the big players and carving out its own niche. Curves is the much-discussed fitness chain targeted exclusively at women. Started 20 years ago, it has grown into one of the most successful global franchises. Master licensee Eric Lin says Curves follows the Blue Ocean strategy of creating markets targeting not the 5% of women who actually attend gyms, but the 95% that don’t. What Curves has discovered, he says, is that “many women don’t want to exercise, but they do want results. But if they don’t work out, they won’t get results – so we must add something.” That something is a female-only zone (men are actually forbidden from entering the premises when women are working out), close attention from female trainers, and a workout system that Lin boasts is “designed scientifically to gain results.” While members’ waistlines may have shrunk since the company entered the market in 2006, its numbers of branches and bottom line have expanded. Curves already has 22 branches and plans to increase to 40 by the end of 2011. Much of Curves’ success can be attributed to its barebones operations, customer loyalty, and subscription business model. Lin says that the company’s operating philosophy is “each month the cash flow from dues should at least be enough to cover all operating costs.” As Curves outlets are much smaller in scale than other health clubs and are located off the ground floor in local neighborhoods, they have much lower costs. This means that each club needs only around 150 members to become profitable. “Most of our clubs become profitable in their first few months,” Lin notes, adding that a club in Japan opened to such success it hit that mark within hours of its opening. So far, most industry leaders feel very confident about the Taiwan market, with all predicting strong growth in the next few years. And with over 50% of Taiwanese engaging in zero exercise according to a recent poll by the Department of Health’s Bureau of Health Promotion, Taiwan’s fitness market seems likely to sail in blue waters for a while to come.

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Keeping Up with the Fast Pace of Change

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A Report on the Telecom & Media Industry february 2011 â&#x20AC;˘ taiwan business topics

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Taiwan Entering Era of Wireless Internet Access Although the six WiMAX licensees are still struggling to attract subscribers, their longterm opportunities appear promising. IN THIS SURVEY

BY PHILIP LIU

• Taiwan Entering Era of Wireless Internet Access

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• Are the Targets Reasonable?

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• Inside Taiwan's Animation Funhouse p35

• Getting Illegal Radio Stations Off the Air

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ajor mobile communications carriers in Taiwan are rushing to expand network capacity and develop digitalcontent services so as to capitalize on the mobile wireless internet craze fueled by the advent of iPhones, iPads, Android phones, e-readers, and a host of other new devices. The craze has led to rapid growth in the number of mobile wireless internet access subscribers, overstraining current network capacity. National Communications Commission (NCC) statistics show that as of the end of October 2010, Taiwan had 26.7 million mobile-phone lines, more than one for every man, woman, and child in its population of 23 million. Between January and October, according to the NCC, the number of subscribers for mobile internet access had surged from 2.83 million to 3.38 million. A study conducted by the Institute for Information Industry (III) shows that in the third quarter of 2010, 65% of the mobile phones in use were 3G models, or smart phones, and that 70% of the smart-phone owners used

the devices for mobile internet access. 3G models accounted for 30% of the phones procured in 2010 by the three major domestic mobile-phone carriers – Chunghwa Telecom (CHT), Taiwan Mobile, and Far EasTone – and the proportion may rise in 2011 to 40%, even 50% after taking tablet PCs such as iPads into account. For the three carriers, the trend has led to a rapid rise in revenue from mobile wireless internet access service (also known as mobile value-added service). CHT, for instance, saw its revenue in that category jump 30% to NT$11 billion (US$367 million) in 2010, following 2009’s similar 30% growth, representing about 10% of its total revenue. The business is expected to rise further in 2011 by more than 30% to NT$14 billion (US$467 million) in 2011, according to Shih Mu-piao, president of CHT’s Mobile Business Group. He points out that last year’s 30% growth in revenue from mobile value-added service compares with 2% growth for the mobile communications operation overall and just 1% for the company’s total revenue.

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At Far EasTone, 2010 revenue from mobile value-added service is estimated at NT$9.3 billion (US$310 million), accounting for 16.4% of its total reve n u e , a n d f o r Ta i w a n M o b i l e t h e estimate is NT$8.2 billion-$8.6 billion (US$273 million-$287 million), for a 14% share of revenue. “Mobile broadband internet access devices have become indispensable daily-life equipment for local people,” says Teddy Huang, president of VMAX Telecom, one of the six license-holders for WiMAX service. CHT’s Shih attributes the popularity to three major factors: the installation of mobile broadband networks, the rollout of smart devices (iPhone, iPad, Android phones), and the mushrooming number of applications available. The volume of mobile broadband t r a n s m i s s i o n i n Ta i w a n h a s m u l t i plied by 23 times in just the past two years, Shih points out. To cope with the resulting problem of overstrained networks, CHT will invest NT$5.5 billion (US$183 million) in expanding its mobile communications capacity in 2011, up from 2010’s investment of NT$5 billion (US$167 million). The project will include the installation of 1,000 3.75G HSPA+ (High Speed Packet Access plus) transmission bases, offering speeds reaching 21 Mbps, doubling the existing number of such high-speed bases. In addition, the company plans to install femtocell devices on customer premises this year, to assure quality indoor internet access for mobile wireless devices. CHT initially plans to install these devices, which cost NT$3,000 (US$100) each, free of charge for users – both individuals and companies – of heavy wireless internet browsers. Some one million clients are expected to benefit, including 750,000 existing users of 3.5G internet access cards, subscribers to “all-you-can-eat” mobile internet-access programs, as well as new smart-phone subscribers, whose numbers are expected to increase by 400,000 in 2011 to reach a total of 880,000. Femtocel functions like an access point (AP) and may be connected to asymmetric digital subscriber lines (ADSLs), cable lines, or fiber-optic lines, providing

internet access through those lines to all mobile wireless communications devices. It plays a role similar to that of a router, but at a 3G broadband frequency. M o r e o v e r, C H T p l a n s t o i n s t a l l hotspots (access points for wireless internet access via tablet PCs) at 4,700 7-Eleven outlets island-wide, boosting the number of its hotspots to 6,000. By the end of this year, it expects to have more than 20,000 such hotspots, and it plans to increase the network in three years to 30,000, in a project that will cost some NT$3 billion (US$100 million). Meanwhile, Q-ware Communications, an affiliate of Far EasTone, also plans to boost the number of its hotspots to 15,000 by the end of this year, up from the current 10,000. The company’s network, dubbed WIFLY, mainly covers thoroughfares, libraries, government buildings, hospitals, MRT stations, convenience stores, and Starbucks outlets. Taipei City accounts for the lion’s share of the hotspots, thanks to the city government’s cooperation so as to earn Taipei the title of “city of wireless internet access.” To tap the business potential of the expanding population of mobile wireless internet browsers, CHT has created a consolidated digital-content platform called “Hami” that includes movies, music, audio-visual programs, news and other TV programs, and e-book. It can be accessed with a PC or mobile wireless internet access device. Moreover, the company is aggressively moving into the realm of cloud computing. Far EasTone has also established a similar mobile value-added service platform, offering such digital content as e-book, audio-visual materials, home theater, digital ads, videophone, and AGPS (assisted global positioning system). The platform can be accessed with various devices, including smart phones, notebook PCs, and tablet PCs, via the company’s consolidated WiMAX (Worldwide Interoperability for Microwave Access) network.

Ramifications for WiMAX The expanding number of mobile wireless internet users offers a fertile

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ground for the long-term development of the six local WiMAX operators, although for the time being they are still struggling to attract enough subscribers to assure the viability of their operations, which were inaugurated in the first half of 2010. The six operators – Far EasTone, First International Telecom, Global Mobile, Tatung InfoComm, Vee Telecom Multimedia, and VMAX Telecom – have licenses limiting their operations to particular regions. Each currently has only somewhat over 10,000 subscribers, since network coverage remains limited due to the insufficiency of transmission bases. As a result, the NCC has shelved plans to issue two country-wide WiMAX licenses. Instead, it has decided to wait until sometime before July 2015, when it will hold public bidding for five additional mobile-communications licenses that would utilize bandwidth made available when existing 2G licenses expire. The 2G licenses owned by the three major telecom carriers of CHT, Taiwan Mobile, and Far EasTone were originally scheduled to expire in 2012-2013 after 15 years of use, but the Executive Yuan has ordered an extension to June 2017 to serve the remaining 8.85 million 2G subscribers, especially those living in remote areas. The extension is a boon for the three major telecom carriers, since they have already fully recouped their investments in 2G facilities. In addition, local WiMAX operators are facing a cloudy outlook as the rival 4G technology known as LTE (Long Term Evolution) gains strength on the global market after obtaining the allegiance of leading telecom carriers such as AT&T and Verizon in the United States and NTT DoCoMo in Japan. The situation is further aggravated by widespread doubts about Intel’s continued commitment to support WiMAX technology following the closure of its WiMAX Program Office (WPO) in Taipei in mid2010. The office was dedicated to the worldwide promotion of WiMAX technology, which was Intel’s brainchild. Intel Taiwan’s country manager, Jason Chen, denies that the company is backing away from its commitment to WiMAX technology, characterizing the dismantling of the WPO as an organizational adjust-

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Growth in mobile wireless internet access subscriptions has been so rapid that network capacity in Taiwan is now seriously overstrained. photo : chunghwa telecom

ment made to reflect the maturity and commercialization of WiMAX technology. Regardless of Intel’s reorganization and the strides made by LTE, those in the WiMAX industry in Taiwan appear to remain upbeat about the outlook for the technology, noting that worldwide there are already 500 WiMAX networks serving 10 million subscribers and involving total investments exceeding US$30 billion. In comparison, it will take at least another two years for LTE technology to enter the stage of commercialization. Taiwan is playing a critical role in the global WiMAX market, as it has established a complete WiMAX hardware supply chain, supplying 90% of the world’s WiMAX customer premise equipment (CPE) and even turning out WiMAX chips and base-station equipment. In addition, it is always possible for Taiwan to later extend its reach to the LTE sector, for production of both applications and hardware, since the technologies are 80% identical. In the meantime, the Taiwan government appears unswerving in its vigorous support for the local WiMAX industry. L a s t O c t o b e r, t h e E x e c u t i v e Yu a n approved an “Action Plan for Development of the WiMAX Industry,” calling for investment of NT$6.6 billion (US$1.2

billion) by 2013. The aim is to boost the local WiMAX industry’s annual output value to NT$130 billion (US$4.3 billion) by 2013, up from the estimated NT$15 billion (US$500 million) of 2010, as well as to induce private investment of NT$50 billion (US$1.7 billion). The plan envisions the number of WiMAX subscribers growing to 2.2 million in two years, and creating 20,000 job opportunities. It also calls for government agencies to embrace WiMAX technology for applications in various government services, such as a notification system for disaster relief operations to be set up by the Ministry of Transportation and Communications. Through the action plan, the government seeks to develop Taiwan into a model market for wireless broadband service and an exporter of related service solutions, achieving a one-sixth global market share for WiMAX equipment and network construction and over 90% for WiMAX CPE equipment.

Integration firm established To spur the export of WiMAX service solutions, especially to such emerging markets such as China and Southeast Asia, the government has helped fund

a WiMAX system integration company that was established last September. The company’s initial paid-in capital of just NT$10 million (US$333,000) was provided entirely by the Industrial Technology Investment Corp., an offshoot of the semi-official Industrial Technology Research Institute (ITRI). As the company’s business develops, the capital will be expanded by soliciting additional input from domestic and foreign companies (including Intel, which has pledged US$3 million initially), as well as further injection of government money. Meanwhile, local WiMAX operators are striving to expand the coverage of their networks by installing extra transmission bases, which will be critical for their operational success. Global Mobile, for instance, plans by the end of this year to boost the number of its base stations to 1,000, up from the current 600, and to extend its coverage – now mainly limited to Greater Taipei and Hsinchu – to Taoyuan County. The expansion will increase the company’s cumulative capital expenditure to NT$1 billion (US$33.3 million). Global Mobile Vice President Wayne Sun says redoubled effort will be needed to overcome the opposition of some residents to the installation of base stations out of unfounded concern about the possible health effects from the magnetic field. He notes that such fears are virtually nonexistent in most other markets. V M A X Te l e c o m i s a l s o e n d e a v oring to install extra base stations, in order to extend the reach of its network from Taipei to New Taipei City (formerly Taipei County). For that purpose, the company will also carry out a capital increase of NT$1 billion. Of the existing capitalization of NT$2 billion, Intel owns a 19.3% stake. In addition, various WiMAX operators have entered into roaming agreements with one another, in order to expand coverage beyond the confinement of their regional networks. Tatung InfoComm and Far EasTone have agreed to provide mutual roaming service for their networks, which cover Taichung City, Kaohsiung City, and the offshore island of Penghu. Tatung has also allied with Global Mobile and VMAX for a

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roaming-service arrangement that covers Taipei City, Hsinchu City and County, Taichung City, Kaohsiung City, Penghu, and Kinmen. The three companies even plan to carry out joint equipment procurement in order to cut costs. WiMAX operators are also making a concerted effort to develop application services appealing to potential subscribers. Channels containing various digital content in such fields as news, entertainment, audio-visuals, transportation information, and daily life are available on the “Gofone” portal site of Global Mobile. In addition, Global Mobile made a major breakthrough in early 2011 with the rollout a WiMAX-based internet telephone service, the first in the world. Subscribers to the company’s WiMAX wireless internet access service, for which they pay a monthly fee of NT$429 (US$14.30), can receive the online voicecall service for an additional monthly charge of NT$100 (US$3.30) or else for a higher fee of NT$250 (US$8.30) that can be used to offset call rates. Calls made inside the company’s own network are free of charge, while those to other mobile-phone networks are charged at NT$3 per minute and to local fixed networks at NT$1.2 per minute. Both rates are only around half of the equivalent

charges by the three major carriers. The service is similar to VoIP phone calls made via Skype, but with better sound quality thanks to the large bandwidth of the WiMAX network. In view of the strong price competitiveness, Global Mobile is optimistic about the prospects for the service, expecting it to help boost the number of its subscribers from the current 10,000 to 160,000 by the end of this year. Citing the limited coverage of the WiMAX network at present, however, CHT discounts the potential impact of the voice-call service for the time being, but concedes the need to watch its effect in the long run. Global Mobile’s Wayne Sun admits that contribution of the voice-call service to the company’s overall profits will be limited, due to the low rates and free-of-charge internetwork calls. “A decline in revenue from voice-call service is the worldwide trend for telecom carriers, who will have to rely increasingly on income from digital-data service,” he says. “In the U.S., local calls are virtually free of charge now.” VMAX plans to launch its own WiMAX internet call service in the second half of this year, according to president Teddy Huang. One noteworthy service the company has introduced is the

Are the Targets Reasonable? The government is setting objectives for digital cable penetration and telecom broadband adoption without spending enough time working with industry on how best to meet these objectives. BY DON SHAPIRO

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mobile Internet service available in some 1,000 taxis in Taipei City, including such features as maps, information on entertainment facilities, audio-visual materials, gaming, e-discount coupons, and participating in public opinion surveys. The company plans to cooperate with more taxi fleets and hopes to expand the number of taxis with such service to 10,000 by year-end. Ve e Te l e c o m M u l t i m e d i a i s a l s o offering WiMAX-based internet services in taxis and buses in Taichung City, including internet browsing, interactive TV, GPS (global positioning system), transportation information, local news, commercial activities, polling, and voting in surveys. It plans to invest NT$100 million (US$3.3 million) in promoting the service in the central-Taiwan city. With the expansion of services and network coverage, local WiMAX operators expect to see explosive growth in the number of subscribers this year, winning a following among the fastgrowing population of mobile wireless internet browsers. “After your network has reached a critical mass in scale, subscribers will naturally flock to the service, attracted by the superior communications experience offered by the cutting-edge technology,” says Wayne Sun.

or years, one of the stated goals of Taiwan’s telecom and media policy has been to promote digitization of the country’s cable TV sector in order to enhance the quality of service. But the progress has been slow. Despite this, major cable operators have invested heavily in recent years in building digital networks to drive new digital services and consumer adoption. As a result, TV viewers have been gradually converting from analog to digital service. Currently, Taiwan’s penetration rate – the proportion of subscribers receiving digital service – is about 6%, behind other markets around the region given its relatively later start. Recently the government has appeared intent on accelerating the process in an effort to enable Taiwan to catch up. Last August, Premier Wu Den-yih announced two goals to serve as key performance indicators: achieving cable digital penetration of 50% by 2015, and by the same year ensuring that 6 million households – nearly the entire population– is enjoying broadband of 100 megabits per second (Mbps). Currently, the majority of broadband subscribers are below the 10Mbps level.

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Following the Premier’s statement of the 2015 goals, the National Communications Commission (NCC), the regulatory body for the industry, is planning to set even more stringent objectives, according to recent press reports. As an illustration, a draft amendment of the Cable Law that the NCC has submitted to the Executive Yuan would reportedly require cable operators to file a plan with the NCC on how they intend to reach 100% digital cable penetration within three months from the enactment of the new law. They will then be expected to attain this 100% target as a condition for renewal of their licenses at the time of their next license review. Licenses come up for renewal every nine years, which means that the next batch of cable TV license renewals will take place in another five or six years. Questions have been raised about the appropriateness and practicality of setting these goals without sufficient consultation with members of the industry on concrete policy measures needed to ensure that the targets can actually be fulfilled. “This is not simply a matter of setting targets,” says Thomas Ee, a cochair of the Amcham Telecom & Media

Committee. “In any country, 100% digitization is only reachable through government and industry collaboration, with a full set of measures including government incentives or assistance, rather than just forcing cable operators’ hands. Operators are only one part of the entire eco-system including government policy makers, content providers, and consumers. Unfortunately, we haven’t seen enough dialogue so far.” “Because we don’t even know the assumptions behind these targets, it’s hard to know whether it makes sense,” Ee continues. Based on the experience of many other markets, including the United States, European and Asian countries, “there are many unanswered questions,” he notes. In the markets that have done well in promoting digitization within a period of five or six years – and even then, in most cases falling well short of 100% penetration – governments have played a key role in building the infrastructure or providing incentives to consumers, operators, and content providers to go digital. All players in the eco-system need to be on board before sustainable and meaningful digitization can take place, says Ee. While the major cable operators

in Taiwan have already launched leadingedge digital platforms, subscribers have only been gradually taking up the option. A major reason for their hesitation is understood to be the shortage of quality local content such as domestically produced High Definition (HD) programs to make consumers feel that without a digital service they are missing out on important entertainment or information services. In contrast, a wide selection of local HD content is available in Japan and South Korea. To be successful in digitization, Ee suggests, government policies must address the issue of the lack of compelling local digital programming. In terms of ownership of cable operations, the landscape in Taiwan has recently changed substantially. Of the four large-scale service providers, which together account for about 70% of the market, three of them used to be primarily foreign-invested. Last year, however, the U.S. private equity firm the Carlyle Group sold a controlling interest in Kbro Co. Ltd. to a local company, and the Taiwan government is currently considering an application from another private equity firm, MBK Partners, to sell its China Network Systems (CNS) to a domestic media group. If the deal is approved, that would leave Taiwan Broadband Communications (TBC), principally owned by the Macquarie Group of Australia, as the only foreign-operated enterprise in the industry. When the three dominant cable operators were all foreign-controlled, they were often the subject of what they felt were unfounded reports in the local media, portraying them as lacking longterm commitment to the Taiwan market and therefore unwilling to make necessary investments. As a previous article in Taiwan Business TOPICS (August 2010) substantiated, the three foreigninvested cable companies in fact made heavy investments to upgrade their networks and level of service, contributing markedly to the development of Taiwan’s cable industry. For example, with extensive infrastructural investments made by its foreign investor, Kbro was able to launch a 100Mbps cable broadband service last year, even as its ownership transition took place.

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A Report on the Telecom & Media Industry

Whether addressing cable digitization or broadband market development milestones, Ee stresses the need for government to look at the whole ecosystem in which business is being done. Currently a relevant part of that picture is the major trend known as Over the Top (OTT) media – digital video streamed through the internet. Services such as YouTube and many portals from China (for example PPStream, commonly known as PPS) are examples of OTT. Some OTT services are available for a subscription fee and some are free, deriving their revenue from advertising. Some may also be illegal, earning advertising dollars by distributing video content via the internet without paying for content licensing rights. But all of them represent competition for existing telecoms and media platforms and their traditional business models – and their presence is likely to impact how easily existing operators can persuade their customers to migrate to new digital services. “The key point about OTT is that these providers do not have a direct stake in local infrastructure development, yet they are enjoying the fruits of the digital highway,” says Ee. “The local broadband highway will increase to eight lanes from three if operators in Taiwan upgrade to 100Mbps by the government’s 2015 target. When this happens, OTT providers who were not the ones who put up the money to replace the copper wires with more fiber optics cables will reap even more benefit without contributing back to Taiwan’s economy.” He notes that it is not just Hollywood studios who suffer from illegal OTT operations. Taiwanese content such as the popular film Cape No. 7 can also be watched via video streamed from China, so that “any consumer can view such content for free, while the producers are probably not getting anything from these OTT distributors.” To facilitate the viewing of OTT content beyond the PC, consumers can buy simple equipment at many computer or electronic markets to connect the internet with their TV set. It probably doesn’t even occur to most consumers that there is anything wrong with watching these streamed videos for free – but the government may need to consider whether it should seek to educate the public or even outlaw such service as part of Taiwan’s responsibility to protect intellectual property rights (IPR). “Once you allow the pipe to be totally opened, and consumers feel that it’s okay to get free videos via the internet, it will be very hard five years later to come back and say ‘sorry, some of the streaming or downloading that you’ve been doing all this time is illegal,’” says Ee. “IPR is important, not to erect trade barriers but to create a level playing field, whether for domestic or foreign players.”

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Inside Taiwan's Animation Funhouse BY JONATHAN SEIDMAN

hen an animation company from Taiwan gets Conan O’Brien’s attention, it's clear the media playing field has changed. The friendly feud between the Taipei-based Next Media Animation (NMA) and late night TV host began when the company did what it does best. It produced an animated send-up of a hot news item, in this case O'Brien's storied departure from NBC. After Conan created his own cartoon lampooning NMA's style, the company immediately issued a riposte alleging, among other things, that Conan's animation is produced by child labor. It's this kind of unconventional take on the headlines that is making NMA's name across the Web. But just who is this Taiwanese company that is single-handedly lending a new dimension to how media stories are viewed? There's in fact an entire building's worth of people involved in crafting every four-by-eight inches of video. The company is part of a media empire (which also includes Taiwan’s Apple Daily) built by Hong Kong entrepreneur Jimmy Lai, who himself pioneered the concept of providing animated reenactments of the news. “People are consuming the news in more and more visual ways, and TV cameras are not always on hand when news breaks,” explains NMA's international content editor, Angelica Oung. “So why not make news animations?” Lai knew that speed was the key to making the whole thing work. The cartoons need to be produced at breakneck velocity to get out before the news goes stale, some showing up on the web within a day of the stories they're dramatizing. That timing is made possible by an assembly-line production style involving an international team of scriptwriters, animators, and motion-capture engineers. But it wasn't until the company's surreal take on the Tiger Woods marital scandal went viral that its reputation for putting a humorous spin on the news was established. “Just seeing those actions up on the screen was funny and people loved it and passed it around,” says Oung. “Having noticed that our animations can be funny sometimes, we exploited that and started making funny scripts.” The web quickly took notice, and NMA's audience has been growing with every click. For example, one of the company's most popular vids – a spoof of invasive TSA airport procedures – has already netted over a million hits. But the funny videos still only account for a small portion of NMA's output, 80% of which is serious depictions of the headlines. Behind all that wise-cracking lies a group of people genuinely dedicated to telling the news. And it's clear that animation can tell a story in an entirely different way than print. Pieces like an animated portrait of the career of imprisoned Chinese dissident Liu Xiaobo, for example, are emotionally affecting in a way that reading a magazine article isn't. But if the videos are finding an appreciative audience internationally, that response has not been shared by Taiwan’s National Communications Commission. The NCC fined Next for excessive violence in its videos, and rejected Lai's application for a cable news channel, citing the sensational nature of the animations.

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A Report on the Telecom & Media Industry

Getting Illegal Radio Stations Off the Air It took a task force, and the willingness to climb high into the mountains, but the campaign has been effective.

BY DON SHAPIRO

ess than three years ago, more illegal radio stations were operating in Taiwan (over 190 of them) than licensed ones (170-some). The underground stations took up valuable bandwidth, often interfering with the reception of their tax-paying rivals, and their commercials hawked specious medications and made unfounded therapeutic claims even for legitimate products. Even more embarrassingly, the pirates seemed to be winning the cat-and-mouse game with the government inspectors who sought to shut them down. Recently the National Communications Commission (NCC) announced that a concerted campaign against the illegal stations since 2008 had finally turned the situation around. Currently fewer than 10 unlicensed stations are still believed to be on the air – three or four during the daytime and perhaps double that number after dark, when the operators assume that all good civil servants are off duty. “It used to be that the NCC – and before that, our predecessor organization the Directorate General of Telecommunications – had the sole responsibility for cracking down on the illegal stations,” explains Cheng Chuan-Ping, director of the NCC’s Northern Region Supervisory Department. Together with his

After climbing up the mountain, technicians have to dismantle the broadcasting equipment. photo : ncc

counterparts in the Central and Southern regions, Cheng has been the Commission’s point man for coordinating the effort against the pirate stations. Then three years ago, the government concluded that a comprehensive inter-agency campaign would be far more

effective in increasing the pressure on the unlicensed broadcasters, who in many cases were violating numerous other laws and regulations aside from the Broadcasting Law. Among these transgressions were failure to pay taxes, illegal occupation of public land, constructing antenna

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Then comes the arduous task of toting it down the steep slopes. photo : ncc

towers without a building permit, and infringement of health regulations by accepting advertising making exaggerated claims for medications. As a result, the authorities set up a joint task force with members from 11 different government agencies. Creating the task force made more manpower and resources available to carry out the crackdown. In addition, with each agency able to seek penalties against the operators of unlicensed stations for different violations, the task force was able to drive up the potential cost of doing business until many of the illegals decided that that the possible gain was no longer worth the risk. For broadcasting violations alone, prosecutors could seek punishment of up to two years’ imprisonment, as well as NT$200,000-$600,000 in fines. The changing risk-opportunity equation was true even though the amount of investment needed to start an unlicensed operation was minimal. The major expense is the purchase of a transmitter, which the underground stations initially imported from abroad for around NT$1 million (about US$33,000). Cheng says that in recent years, as the operators grew more fearful that the equipment would wind up being confiscated, they learned to assemble their own transmitters out of domestic components – lowering the

cost first to the NT$300,000-$500,000 range and eventually all the way down to NT$100,000-$200,000. The equipment could be housed in a tiny shack made of sheet metal, as long as air conditioning was provided, and an antenna tower would be erected nearby. Those facilities are normally located high in the mountains, both to widen the area covered by the transmission and to make the site difficult for inspectors to detect. In a scenario similar to what once transpired between “revenuers” and “moonshiners” in the Appalachians in the United States, the operators would often be tipped off that government officers were prowling in the neighborhood, and the transmitter would be turned off by the time the inspectors reached the site. Even after gathering evidence of the illegal operation, the task force needs to obtain a court order before it can return with a policeman to dismantle the equipment – providing the operators with further opportunity to shut down and disappear if they get wind of the impending raid. In many cases, locating the site and obtaining the warrant were only the beginning of the challenges. Some transmission shacks were surrounded by animal traps or high-voltage fences, or had signs warning that explosives would

A typical illegal “station” is housed in a metal shack high up on a mountain. photo : ncc

go off upon forced entry. One operation was truly “underground” in that the transmitter was buried, covered by a 100-kilogram steel plate. Carrying the heavy equipment on their backs down the steep mountain slopes is also a dangerous exercise for the task-force teams. Often they need to first rig the paths with guide ropes to lessen the risk of serious injury. Although the magnitude of the illegal broadcasting problem has now been greatly reduced, the task force realizes that it cannot relax its surveillance. “A lot of unlicensed operators are undoubtedly still out there, waiting for the heat to be off before turning their equipment back on,” says Cheng. “We know we have to stay vigilant.”

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Recollections and Reminiscences In honor of AmCham’s anniversary, 23 past Chairman recall their Chamber experience.

uring this 60th anniversary year, AmCham Taipei will be commemorating our six decades of service in many different ways and on many different occasions. But early in the year, we wanted to make space available in Taiwan Business TOPICS to hear from as many of the Chamber’s past Chairmen (or Presidents, as the position was called until 2006) as we could locate. Below are messages from 23 of those leaders – from Alan Eusden, who just stepped down from the post a few months ago, all the way back to Bob Morehouse, who led AmCham for two terms in 1966 and 1967. (I would like to thank TOPICS Editor-in-Chief Don Shapiro for his persistence in tracking down some of the former leaders that we had lost touch with). For me, the new kid on the block just beginning my tenure as Chairman, reading the remarks of my predecessors has been both humbling and inspiring. What comes through clearly is the dedication and determination they exhibited while in office, as well as the deep well of sentiment they continue to feel for AmCham Taipei. For many members of AmCham, these messages will also be a first glimpse into some of the challenges this organization faced over the years and the important contributions AmCham Taipei has made to Taiwan’s development – a subject we plan to go into in much more detail in a later issue of TOPICS. As we embark on AmCham Taipei’s next 60 years, we can take pride in this organization’s past successes and draw encouragement from them to carry us on to even greater achievements.

— Bill Wiseman, Chairman, AmCham Taipei, 2011 –McKinsey

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Alan Eusden

2009-2010 | Corning

My two years as Chairman were a delight, mostly because of the great people associated with AmCham. Originally I had no intention of running for office or being the Chair, but Richard Vuylsteke and Andrea Wu were extremely convincing: “The leader of the largest foreign investor in Taiwan has to be Chairman of AmCham!” Those two years involved significant challenges as we faced the economic downturn in 2009 and the continued shadow of the U.S.-Taiwan beef issue. But there were also great opportunities, especially due to the strengthening economic linkage between Taiwan and China, the sharp focus of AmCham’s committees on increasing Taiwan’s competitiveness, and the chance to tap into the strengths of new leadership in the AmCham office. We ended up thriving after the economic “tsunami,” with increased membership and record attendance at events like Hsieh Nien Fan (thank you President Ma) and the AmCham Gala Ball (thank you Chairman Fay). We encouraged and appreciated the KMT government’s movement towards a more competitive economy, with accession to the Government Procurement Agreement, continued focus on IP protection, and the development of ECFA. Our White Paper and Committees continue to point out that more work needs to be done for Taiwan to reach world-class competitiveness, but some good steps have been taken. We extended our deep appreciation to department directors Brian Asmus, Anita Chen, and Stephanie Poon as they moved on to the next steps in their careers, but were able to rely on the continued strengths of Andrea, Don Shapiro, and Jessica Chen and the new ideas and spirit of Angela Yu and Sharon Tao. I also want to acknowledge the strength of AmCham’s relationship with AIT and especially the help and support we received from Directors Bill Stanton and Steve Young and Assistant Directors Eric Madison and Bob Wong. For me personally, some of the best times were simply those spent with the other business leaders (and bikers) and the professional AmCham staff. We worked hard, but also played hard and enjoyed our many meals and occasional cocktails together. As we look towards our next 60 years, I see AmCham proceeding with growing strength, a continued commitment to making Taiwan as economically competitive as possible, and a vibrant and interested membership enjoying the time we spend with one another.

Christopher Fay

2008 | Saatchi

It was my honor to serve as Chairman following Tai-Chin Tung's return to the States. The whole year was one of change for our Chamber. We saw the departure of Richard Vuylsteke for Amcham Hong Kong, so everyone onboard had to chip in extra time and effort. The inauguration of President Ma ushered in a new era for the Chamber on many important fronts, and all of our AmCham committee chairs, staff, Governors, and officers felt a new “let's get down to business” spirit in our dealings with the national government. At the same time, we all watched in horror as the global economy entered into a severe contraction. I wish to make special mention of the contributions made by Jeff Nemeth as Governor, Vice Chairman, and Ford Lio Ho chief during this time. We helped make the case to the government that almost 25% of Taiwan's employment was, in one way or another, dependent on the auto industry. By early 2009, the ROC enacted measures to promote sales of newer, more energy-efficient vehicles during the worst of the downturn. Many jobs were saved and an important prop for the economy was put in place. I will always view this case as AmCham at its very best: a team effort by excellent AmCham office leaders, energized Governors, and officers – with good ideas for business success to benefit all of us in Taiwan.

Tai-Chin Tung

2008 | Fidelity

H a p p y 6 0 t h B i r t h d a y, AmCham! The Chamber has a special place in my heart. To be a part of the Chamber's leadership team was a great honor and one of the greatest team experiences I ever had. The passion of the Board, committee chairs, and the staff, and their commitment to the members' welfare, was touching and impressive. For 60 years, the Chamber has witnessed and participated in the development of the Republic of China. As it turns 60, I know that the Chamber, its board, and members will continue to be active leaders of the foreign business community and the best sounding board for the ROC government and its people.

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Jane Hwang

2007 | State Street Bank

Indeed, 60 years is a major landmark!! Congratulation, AmCham Taipei!!! I learned much more, and continue to learn, from AmCham Taipei than from any other professional affiliation. And to be the Chair of the Board in 2007 was an especially rewarding learning experience. Over the years, AmCham Taipei has raised the clearest voice to advocate for a liberalized and progressive market in Taiwan. For this, among many other things, AmCham Taipei will always be remembered and appreciated by its members, the Taiwan business community, the public sector, and the global investors who are interested in investing into this market. As a member, I would like to take this opportunity to thank AmCham Taipei, its leaders on the board, its committee chairs, and many others who have contributed to AmCham Taipei’s success.

Tom Johnson

2005-2006 | Air Products

Serving as AmCham chairman was one of the most rewarding experiences during my seven years in Taiwan. Our members, committees, and officers were active and engaged in generating very specific business improvement recommendations for both the Taiwan and U.S. governments. I thank the Taiwan government officials for their willingness to hear our thoughts and also to challenge AmCham to do more to help Taiwan. And even though progress was sometimes viewed as happening at a snail’s pace, international companies continued to experience an improving business environment. This was a challenging time for Taiwan as all eyes were on China’s emerging world economic status. AmCham worked tirelessly with the Taiwan government, the American Institute in Taiwan, and U.S. government officials and think tanks to keep Taiwan’s economic status relevant and visible. Of our many talking points, we never lost sight of – or gave up hope for achieving – the economic benefits of stronger cross-Strait relations. Witnessing the amazing strengthening of cross-Strait business over the last few years has been very rewarding. As an AmCham member and officer, I was very fortunate to work with a professional and experienced staff led

by Richard Vuylsteke. I was also privileged to follow in the footsteps of Andrea Wu who was Chairman prior to my tenure. Andrea and Richard quickly brought me up to speed on AmCham matters. Our events continued to grow in popularity thanks to Brian Asmus and Stephanie Poon. I am also grateful to Government Relations Director Anita Chen, who guided our interactions with government officials to achieve many of our goals. Finally, my thanks to Don Shapiro for his editorial skills on Taiwan Business TOPICS, our acclaimed business magazine, and also for coaching me on government organizations, personnel, and proceedings. I encourage international business leaders in Taiwan to take an active role in Taiwan’s economic success and to improve the communities where you do business. I’m sure you will find your contributions rewarding and your business experience in Taiwan more fulfilling. The people of Taiwan are simply the best you will find and they will be grateful for your assistance. Happy 60th Birthday AmCham! Taiwan, jia you!

Andrea Wu

2004 | United Airlines

I first joined AmCham Taipei in 1993, but during my three years of membership only attended a few monthly luncheons. After I rejoined in 2000, however, I was elected as a Governor and served a s Vi ce Ch ai rma n fo r tw o terms before becoming the Chair in 2004. It was a humbling yet extremely rewarding experience, from working with numerous industry leaders, academics, and top executives through committee activity, White Paper preparation, and Doorknock visits to Washington, D.C. Both the Taiwan and U.S. governments regarded AmCham as a creditable source of information and a critical mover and shaker. In 2004, the business environment in Taiwan was fairly bleak. Politically, the mood was divisive, especially after the “two-bullets” incident prior to the presidential election in March, making the legislative process unreasonably lengthy and inefficient – and distracting attention from the economic agenda. Meanwhile, China was becoming increasingly attractive to foreign investment and professional talents. Without direct cross-Strait links, what should have been a 90-minute flight between Taipei and Shanghai often took seven hours. To save time and cost, many businesspeople relocated to China. In the 2004 White Paper, AmCham Taipei strongly urged Taiwan to establish direct links as early as possible, sparking heated discussion and debate in the following days in various media channels.

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In tackling industry issues, we appreciated the consistent support we received from the Council for Economic Planning and Development (CEPD), which worked closely with AmCham’s leadership on a number of issues critical to our member companies. Some issues were resolved rather quickly, though many others took much longer to show any progress. AmCham is a relay race in which the mission and commitments have been carried on from one Board to another for 60 years. I am amazed and deeply touched by the passion, dedication, and professionalism demonstrated by the various leaders of different generations. I am very proud to be one of them and am thankful to be given such a fulfilling opportunity. I look forward to continuing to contribute to AmCham’s growth and success.

Gus Sorenson

2003 | Lockheed-Martin

Serving as the Chairman o f A m C h a m Ta i p e i w a s a treasured, challenging, and satisfying experience. Possibly because U.S.-Taiwan relations had been the major theme in my life – U.S. Air Force overseas assignment in Taiwan 1963-64, graduate school at t h e N a t i o n a l Ta i w a n U n i versity Law School 1977-79, manager of USAF-Taiwan AF foreign military sales 1985-89, and oversight of U.S. Department of Defense-Taiwan Ministry of Defense relations while working in the American Institute in Taiwan 1992-98 – I viewed the AmCham chairmanship as a cherished capstone of my experiences. As for 2003, it was uniquely challenging due to the epidemic spread of the deadly SARS (severe acute respiratory syndrome) virus and its crippling impact on travel, trade, and economic growth. Another key challenge was addressing the tone and focus of the 2003 White Paper, the centerpiece of each year’s efforts. Since Taiwan had just become a member of WTO, our tone spoke to the common interest of foreign businesses in Taiwan being there to work with domestic companies and consumers. Our focus was on recommendations to improve Taiwan’s overall attractiveness as a place to do business by providing a level playing field with high standards befitting a vibrant, globally connected, knowledgebased economy. My time as AmCham Chairman was also among the most satisfying periods of my life. I enjoyed working with the Board of Governors and Supervisors and the AmCham staff to improve Chamber membership, identify key issues, and schedule venues to attract and inform decision-makers. Especially satisfying was briefing Congressional delegations and senior U.S. government officials on AmCham issues, meetings with Taipei City and Taiwan government leaders to discuss

key issues of living and doing business in Taiwan, and leading the Doorknock delegation to Washington, D.C. to talk faceto-face with Congressional members, senior USG officials, and leading Asian-Taiwan scholars to understand their concerns and express our issues and efforts. In sum, my experience as the 2003 AmCham Chairman was the best of times.

Tom McGowan

2002 | Russin & Vecchi

Throughout the almost 30 years that I have been involved with AmCham (including a stint as Chairman for a few months in 2002), the two words that have defined the organization for me have been “opportunity” and “challenge.” Throughout its 60-year history AmCham has had the unique opportunity to continuously participate in, and influence, policymaking both in Taiwan and the U.S. – not only on traditional “chamber of commerce” business issues but also on issues as fundamental as Taiwan’s very status as a body politic, its evolution from military dictatorship to modern democracy, and its finding the right balance in its relationship with mainland China. The challenge for the AmCham leadership, staff, and members has not been to find opportunities to have influence. The opportunities have been there. Rather, the challenge has been to develop and effectively use the skills required to intelligently step up and deliver on those opportunities and to be a positive contributor to a process that has often been more of a political science and socio-economic exercise than a business or commercial exercise. I would like to congratulate AmCham for 60 years of repeatedly meeting that challenge and making a positive contribution not only to the U.S. business community in Taiwan but to Taiwan society as a whole.

Richard Henson

2001-2002 | Texas Instruments

Congratulations on AmCham’s 60th anniversary! During my active years in the Chamber (1993-2002), I participated in various industry committees and numerous Doorknocks, White Papers, and Hsieh Nien Fans. What most impressed me during those years was the professionalism and expertise of the industry committees and chairs, and the willingness of Taiwan government officials

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to be active listeners in the interest of economic development. When the brutal pace of business clashes with the often futile or self-defeating machinations of politics, it’s critical that businesspeople and economic policy makers have a clear understanding of goals, choices, and consequences. AmCham Taipei has a well-deserved reputation for clearly laying out these options. I now spend most of my time on the other side of the Strait, primarily working with factories on the mainland to produce goods for export. My suppliers are a good mix of Hong Kong-, Taiwan- and China-owned and managed factories. I am convinced more now than ever that Taiwan companies have a leg up in terms of being creative, reliable, and quality-conscious – tough negotiators to be sure, but able and willing to deliver a product to promise. I’d like to think that one of the reasons for this difference is the internationalstandards mindset that AmCham has helped foster in Taiwan over the years. I’m gratified to see that more shackles have been lifted from Taiwan companies and that direct links have finally become a reality. I still get to Taiwan a few times per year, and it always feels like I’m returning to visit an old friend.

Peter Banko

2001 | Bank of America

2001 was a defining year for the chamber’s then 50-year relationship with the Taiwan government. It was also a pivotal year for Taiwan in terms of its political development, the democratization of government, and transformation into a more open society. The new DPP administration, having been denied the opportunity to govern for so long, was challenged by a dearth of experienced leaders. Consequently, President Chen Shui-bian, seeking broader support and guidance, paid unprecedented attention to the Chamber’s Taiwan White Paper. The first indication of this transformation was when President Chen publicly recognized – at AmCham’s 2001 Hsieh Nien Fan event – the value of the paper’s economic, financial, and industrial analysis and recommendations. This was followed by a presidential invitation to the Chamber’s leadership to brief him and his cabinet on the 2001 Taiwan White Paper priority issues. The meeting, which took place at the presidential residence, was unprecedented at that point in the Chamber’s history. Never before had a president requested a policy briefing, much less one that included his senior policymakers. The invitation underscored the government’s desire to create an open and transparent dialogue with the foreign business community on key economic issues. As encouraging as those events were for the Chamber’s

longstanding strategic goal of effective lobbying, 2001 also ushered in key changes: the diffusion of political power away from the executive branch to the legislative, a severe economic downturn, and growing cross-Strait investment and tension – all of which would call for a revitalized AmCham strategy to meet the ever-changing conditions and needs of Taiwan’s vibrant society.

Paul Cassingham

1999-2000 | Perkins Coie

Soon after I became Chairman in January 1999, Lynn Sien announced that she was stepping down as AmCham’s executive director (as the office of president was then known). Lynn had been a fixture at the Chamber for years, and I didn’t know how the office – with its very young staff – could run without a leader for the months it would take to find a successor. But everyone rose to the challenge, and by August the contagiously energetic Richard Vulysteke had arrived to fill Lynn’s shoes. Other major events claimed our attention. Taiwan endured the physical shock of the 9/21 earthquake, followed by the political shock of Chen Shui-bian’s election as the first non-Kuomintang ROC President. Within AmCham, U.S. companies were becoming less likely to be run by Americans, and Board members were beginning to spend more time in China and less in Taiwan. Sometime during this period, AmCham held its first event entirely in Chinese. I often felt I was reacting to big events and trends, rather than setting priorities for the Chamber. Then in the spring of 2000 came a chance for AmCham to do something really significant. Negotiation of Taiwan’s accession to the WTO had been completed a few years earlier, but was stalled because of China’s insistence on joining the WTO before Taiwan. The U.S. Congress planned to vote on whether to extend permanent normal trade relations (PNTR) to China, an important step toward China’s WTO membership. Friends of Taiwan in the Congress opposed the idea, reasoning that anything benefiting China would harm Taiwan. AmCham disagreed, since Taiwan’s WTO admission depended on China’s. None of us knew what President-elect Chen thought. We met with him, and he agreed to sign a letter supporting PNTR. A small group of us took the letter to Washington, and spent a week discussing it with members of Congress and their staff. PNTR passed the House by fewer than 10 votes, and we were told that Chen’s letter and our trip had changed votes. When China and Taiwan went on to enter the WTO, it felt good to think we might have made the difference. No AmCham Chairman can accomplish much by him- or

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herself. I was fortunate to have the advice and support of a particularly strong team of Board members, especially one of the under-sung heroes of the Chamber, Bill Bryson. Maybe the smartest thing I did as Chairman was to ask Bill to review the White Paper. He’s still doing it, more than 10 years later.

Jeffrey R. Williams

AmCham’s relationship with officials at all levels of the Taiwan government was always cordial and mutually supportive – something we always deeply appreciated. Congratulations to AmCham Taipei on the 60th anniversary, and greetings to all my colleagues on the Board of Governors “back in the day.”

1997-1998 | American Express Bank

Christian Murck

When I became AmCham Chairman, the annual White Paper had been an Englishonly document, but before my first Doorknock as Chairman, the Chamber sought to increase its impact by producing a Chinese translation. Before departing for Washington, we dutifully made the rounds of the Taiwan government to introduce the Paper, which as always was received politely. Then in Washington, at our closing press conference, we casually left a stack of White Papers on a table for the (mainly Taiwanese) press corps to pick up on the way out. The next morning’s Taipei newspapers blared that AmCham had flown to Washington to attack Taiwan’s China policy. At issue was a single line in the White Paper saying that “If the ‘No haste, go slow’ policy is not changed, it will have a long-term negative effect on Taiwan’s economy.’” Senior Executive Yuan officials told the press that AmCham was not behaving as guests should, and when we got back to Taipei, we were called into the office of Vice Premier John Chang for a scolding. In contrast, then-Premier Vincent Siew shrugged the whole thing off, and graciously accepted our invitation to speak at a major AmCham dinner a few weeks later. Although we took a lot of short-term heat, in the end this White Paper established that AmCham could lobby effectively for changes in even sensitive policies, when these directly affected business interests, as the cross-Strait policy clearly did. T h e c r o s s - S t r a i t i s s u e b e c a m e a major theme for AmCham: that Taiwan risked being marginalized in the world economy if it failed to address the growth and attractiveness of China as an investment destination by normalizing the business relationship across the Taiwan Strait. Sadly, this advice was not heeded at the time, and opportunities were lost during succeeding administrations in Taiwan. By the time concrete steps were taken, the focus of American business had moved decisively from Taiwan to China, and the dream of building Taiwan into a regional operating center for multinationals never came to fruition. Yet despite the minor blowup over the White Paper,

When I arrived in Taiwan in 1991, the business community was talking about direct links to the mainland, expected within two or three years. A related concept, Taiwan as a regional operations center, became an organizing theme for many of the positions taken by the Chamber. Given the reluctance to move ahead with direct links, I always wondered what region the government meant. That question has since been decisively resolved – first, by the flood of Taiwanese investment in mainland China and the many people from Taipei living there; second, by the regular direct flights now available; and finally, by the Economic Cooperation Framework Agreement. Now living in Beijing, I returned last year for a visit on a smooth direct flight. In Taipei, I was impressed by the efficiency of the mass transit system that made our lives miserable when it was under construction in the mid-90s, and by the evident prosperity and maturity of the society. The Chamber was a vibrant organization when I chaired its Board in 1995-96, with a vigorous committee structure and a professional staff led by Lynn Sien. The annual White Paper was a centerpiece of our efforts to represent the business community’s views to both the U.S. and Taiwan governments; I continue to read it with interest today. Given the unofficial nature of diplomatic relations between the U.S. and Taiwan, the Chamber played a fundamental role in the relationship. We had good access in Washington, where we all learned how to lobby, as well as in Taipei. My tenure ended with the missile test crisis of 1996, which in retrospect demonstrated the resilience of the people on the island, as well as the importance of American support for its security. My experience in the Chamber was formative. When I moved to Beijing, AmCham China was preparing its first White Paper on the business environment; I led the committee that edited the first three. AmCham China also started its annual Appreciation Dinner for government officials (there were over 800 guests at last year’s event in November) modeled after the Hsieh Nien Fan. I subsequently chaired AmCham China in 2002-03 and in 2009 joined its staff as

1995-1996 | Chemical Bank

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President. It’s fair to say I’ve been a chamber junkie as a result of my experience in Taiwan, and that your influence has been widespread. Congratulations on your first 60 years! As Taiwan continues to address the future, I‘m sure the American Chamber of Commerce in Taipei will remain a constructive voice.

At the time, we had a faint hope that this visit would be the beginning of a newly defined relationship with the U.S. In fact, several other U.S. Cabinet Secretaries did visit during the Clinton administration. Unfortunately, this practice was not continued under Bush. In any event, congratulations to AmCham Taipei on its 60th Anniversary! Keep up the good work. My family and I wish you another great 60 years.

William S. Botwick 1993-1994 | General Motors

Jim O’Hearn We lived in Taiwan from 1990 to 1995. It was our first of five postings in Asia over almost a 19-year period and we have many great memories. Of these, my participation in AmCham Taipei was one of the most satisfying. The apocryphal Chinese curse, “May you live in interesting times,” to some extent describes my two terms as AmCham Taipei chairman in 1993 and 1994. We had a number of difficult issues, including the threat of U.S. sanctions over IPR protection and our disagreement with and withdrawal from the U.S. Chamber of Commerce over similar issues. However, our No. 1 objective during my two terms was to have an official visit of a U.S. Cabinet member. Although we had many important U.S.-based officials visit Taiwan – including James Baker, William Bennett, and Jack Kemp (all former Cabinet members at that time) – the only sitting U.S. Cabinet member who had visited Taiwan since Carter broke relations in 1979 had been USTR Carla Hills in 1992. AmCham vigorously lobbied for such a visit during the first Taiwan-specific Washington Doorknock in 1993. I also raised the issue with then Secretary of the Treasury Lloyd Bentsen during a meeting with AmCham Asian Chapter chairmen in Jakarta in January 1994. During this meeting, Larry Summers, then an assistant to Bentsen, privately assured me this issue would be addressed. Nevertheless, we were not optimistic. As the end of my second term approached, it appeared we would not achieve this key objective. Then in late 1994, we received word that Frederico Pena, Clinton’s Secretary of Transportation, would make a short visit and participate in the U.S.-Taiwan Business Council conference. Although AmCham was not the only organization lobbying for this visit, we believe that we had played an important role. Unfortunately for me, on the day of the visit, I was stricken with a bad flu or virus and could not get out of bed to greet the Secretary. Rumors at the time that my sudden illness was precipitated by the highly publicized, ongoing General Motors (my company) dispute with the U.S. Department of Transportation over a large recall were unfounded.

1991-1992 | Premier Chemical (Gulf Oil) I'm so pleased to congratulate Amcham Taipei on its 6 0 t h a n n i v e r s a r y. Tw e n t y years ago, I presided over Amcham's 40th anniversary, at which time we had the pleasure of having former Premier Sun Yun-suan to participate in our celebration. It was truly a wonderful occasion to have such a popular and extremely effective leader as the ROC government's representative to take part in that event. AmCham played a major role in bringing many important issues relevant to the American investors in Taiwan at that time to the attention of the ROC government.

Jim Klein

1983-1984, 1990 | General Instrument

As an American expatriate in Taiwan from 1974 until 1993, I was fortunate to witness and participate in the Economic Miracle of Taiwan as a businessman, but more importantly as a member of the American Chamber of Commerce. Prior to “derecognition” in 1979, the American community was dominated by the U. S. military, the U.S. Embassy, and to a lesser extent by the mostly U.S. manufacturing firms. The Chamber of Commerce was also an important and influential organization. All of this changed dramatically with derecognition of the Republic of China on Taiwan by the U.S. government. The U.S. military was gone. The Taiwan Relations Act and the American Institute in Taiwan were in the future, and U.S. companies were nervous. Attention turned to the American Chamber of Commerce as a focal point and the response was

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outstanding – beyond belief. Member participation increased dramatically, and the time, effort, and sheer knowledge and professionalism of the expatriate community were on full display. The coordination of government-to-government communications, the Taiwan Relations Act, involvement in the creation of ICRT, the new American Club, and retention of the Taipei American School are a matter of record. As a long-time member of AmCham, Board member, and Chairman for three terms, I believe these accomplishments and the continued growth and influence of AmCham is the direct result of the committee system. Staffed by volunteers, the committees produce an awesome amount of information respected by the local government, U.S. government, and industry leaders. The annual White Paper is awaited with great interest and Topics is a must read. During my involvement, the hundreds of breakfast meetings with visiting politicians and industry leaders, and presentations at “Chief of Mission” and USA-ROC Economic Council meetings were anticipated because of the quality of the information presented – information researched, analyzed, and issued by the many AmCham committees. I am also an avid reader of Topics each month, and you have my compliments on the continued professionalism in presenting this important information for an everexpanding audience.

Loren Wolter

1988 | RCA

As a member of the Chamber from 1969 to 1989, I had a fantastic experience. Having held almost every office including Chairman and Executive Director, I feel a great regard for the dedicated work the members do. Building the Chamber as we partnered with the government organizations to make Taiwan a great place to invest took great effort from all the Committees run by outstanding chairmen. The greatest responsibility given to me by the Chamber was to guide ICRT (International Community Radio Taipei) as the Vice Chairman for over 10 years. ICRT was the only English-language radio station available to the expat community. It is hard to believe in today’s world of massive communications how important radio was at that time, but it was the best way we and our families could receive weather warnings, news, and current events. Even in the business world we had only telephone and telex in those days. Congratulations to all on 60 years of advancement for the good of American business in Taiwan.

Marinus “Dutch” Van Gessel 1976-1977, 1986 | Pacific Glass (Corning) I recall the many interesting breakfasts with U.S. government dignitaries, the pleasant excursions to Asia Pacific Council of American Chambers of Commerce (APCAC) meetings, the close working relationship with the Embassy and eventually AIT, and the strong cooperation we always received from the R.O.C. government. Overall, it was a journey that most U.S-based businessmen will never have the chance to experience. The basic structure of AmCham has served it well. A small core of elected Governors and Supervisors establishes the yearly objectives, and the work is parceled out to a group of specialized committees supported by a competent professional staff. But the real strength of the Chamber lies dormant and does not surface until it has an issue which forcefully propels all of us into cooperative action. Such issues are usually not expected, nor are they always welcome. But they do serve to get us all working together toward a common goal. The U.S. “derecognition” of Taiwan was such an example. Our AmCham members voluntarily rose to the occasion, giving their time and talent to prepare position papers, press releases, and letters to U.S. senators and congressmen. Ray Chen, Charlie Cushing, Joe Coffman, Tommy Delehanty, Rob Parker, Jim Perry, Bill Sellars, Tony Chong, and Gale Peabody will be remembered as having been active participants. I therefore believe the Chamber's real strength is its potential to rise to the occasion no matter who happens to be at the helm at that particular time. We have the structure, we have the talent, we have the depth of experience. All we need is an Issue – with a capital I.

Jerry Loupee

1985 | Taiwan Polypropylene

My family and I arrived in Taiwan in 1976, and I served on the AmCham Board for several years and as Secretary and First Vice Chairman before becoming Chairman. After leaving for Bangkok in early 1986 to assume a new regional position with my company, I returned to Taiwan for business regularly until my retirement in 1993. I witnessed and participated in Taiwan’s transformation from a labor-intensive to a more advanced and high-tech

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anniversary economy. It is amazing to see where they were then and where they are now! Our company was part of the new petrochemical complex located in Kaohsiung when that process began. Among the prominent issues during my chairmanship was a strong protectionist movement in the U.S. Congress and the ROC government’s efforts to reform, improve, and revitalize Taiwan’s economic system. AmCham made a positive contribution regarding both these issues by working with our good friends in the ROC government and at AIT, and by lobbying members of Congress. AmCham Taipei also participated actively in APCAC. Each June APCAC sent a delegation from around the region to Washington, D.C. for a week to lobby against the protectionist movement and for other trade and investment issues. I led that group for several years as APCAC’s Vice Chair for Washington Relations. AmCham Taipei would usually have 12-15 participants in the 40-50 member delegation. We also lobbied Taiwan officials to liberalize their strict import restrictions, and we had countless breakfast meetings with elected American officials and U.S. business heads who visited Taiwan. AIT was truly an effective supporter of U.S. business interests. The Director, James Lilley, was always a great help, and Harry Thayer, who succeeded him, continued the pace without a hitch. AmCham members also worked constructively with the US-ROC and ROC-US Economic Councils. Major conferences were held annually, rotating between Taiwan and the US. C.F. Koo headed the ROC council, and David Kennedy, a former U.S. Secretary of the Treasury, led the U.S. side. Some of my good friends and associates in AmCham were Gale Peabody (the executive diector), Jim Klein, Jim O’Hearn, Walter Larsen, Chip Gow, Herb Krane, Tony Chong, Kirk Henderson, Brian Gambrill, Rob Parker, Jimmy Wang, Bob Hoffman, Phil Paxton, Nick Bou-Saba, Don McCann, and Warren Bruns. We had 748 individual members

Carter Booth 1981-1982 | Chase Manhattan Bank It is a pleasure to congratulate AmCham Taipei on its 60th anniversary. I arrived in Taipei in late December 1979 and served as an AmCham Director for four years and Chairman for two terms. This was an exciting and challenging period for foreign businesses operating in Taiwan, which was adjusting to the Taiwan Relations Act and the uncertainties of implementation. During the period I led the Chamber, we had an exemplary board, many of whom went on later to also become Chairmen. The key issues facing

AmCham in 1981-82 were the enforcement of intellectual property rights and anti-counterfeiting, and equitable financial and banking reform for the foreign banking sector. Members of the Chamber were also dealing with the key issues of support for the Taipei American School, ICRT, and the American Club recreational facilities. The AmCham annual Doorknock to U.S. government entities in Washington, D.C. was primarily concerned with issues relating to provisions of the TRA and their implementation. The late and wonderful Ambassador James R. Lilley was Director of AIT and was extremely supportive of the work of the Chamber and Taiwan. During the 1982 AmCham Hsieh Nien Fan dinner at the Grand Hotel, the Chamber honored Premier Sun Yun-suan, who as Minister of Economic Affairs was credited as being one of the chief architects of Taiwan’s “Economic Miracle.” The Chamber also recognized Central Bank of China Governor Yu Kuo-hwa, who later became Premier (Taiwan’s 38 years of martial law came to an end during his term). Prior to my return to Chase Manhattan Bank headquarters, I met with President Chiang Ching-kuo. President Chiang was always appreciative of AmCham and its efforts on behalf of the people on Taiwan. The years in Taipei were happy ones for me and my family. To this day, we maintain many close friendships from that exciting period. Again, heartiest congratulations to AmCham and the important work it continues to carry on.

Robert P. Parker

1979-1980 | Russin & Vecchi

When the U.S. announced in mid-December 1978 that it was breaking diplomatic relations with the ROC, I had just been elected AmCham Chairman and was only Chairman-elect w h e n I a s s u m e d l e a d e rs h i p o f A m C h a m ’s i n i t i a l response to the crisis. Within an hour of President Carter’s announcement, all of the Taiwan television networks had crews in my office. I stated AmCham’s position that we didn’t object to U.S. recognition of the PRC as such, but took strong exception to the terms and to how our Taiwan friends had been treated. The U.S. Congress invited AmCham to testify on proposed legislation to provide for “unofficial” relations with Taiwan. I testified on AmCham’s behalf, emphasizing that AmCham is dedicated to protecting and advancing American economic interests in Taiwan. My purpose was to point out how those interests had been jeopardized by “normalization” and to offer specific proposals for correcting the failure:

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(1) to provide adequately for the security of Taiwan and (2) to offer a clear and sufficient legal framework to continue the normal functioning of trade and investment. When the final version of the Taiwan Relations Act was adopted, everyone saw that virtually all of AmCham’s principal recommendations had been written into law. The American business community in Taiwan also developed a close, new working relationship with the ROC government during this time. We submitted four requests to President Chiang Ching-kuo and Premier Y.S. Sun: (1) a new campus for Taipei American School, (2) a youth activities program for foreign children, (3) a new home for the American Club, and (4) permission to operate an English-language radio station to replace AFNT (the military-run American Forces Network Taiwan). Following quick approval by the ROC government, AmCham members contributed countless hours of volunteer effort to make those projects succeed. The success of these institutions has been highly gratifying to those of us who had the privilege of contributing to those efforts.

Hank Weiner

1967 | Getz Bros. & Co.

The period that I served as Chairman and Board member produced a lot of interesting changes. First, we moved from the Friends of China Club (FOCC) to our first “real” office in the President Hotel. That also coincided with the hiring of our first full-time Executive Director, Guy Guh, who was followed by our longtime stalwart, Gale Peabody. That era also produced our first publications, Topics Magazine and – courtesy of my wife Rose Marie – the first of many NEWCOMERS’ NOTEBOOKS. Although I am not sure of the exact date, this was also the period during which APCAC was founded and in which I participated, including one trip to Washington as part of an annual lobbying effort. I initially arrived in Taiwan in 1965 and immediately joined the Chamber. At that time most of us were in the early stages of our overseas careers and the Chamber became our second home and the source of most of our personal friendships. (The more senior people in our companies were enjoying Hong Kong, Tokyo, etc.) Many of those relationships, at least in my case, continue to this day. In fact in recent years we have had several “Taiwan Old Timer” reunions in Palm Springs that included many “ex-Chamberites.” During my first tour in Taiwan, 1965-1974, I was on the Board of Governors almost the entire time and then rejoined the Board shortly after I returned to Taiwan in 1979-1984. I have good memories of working under Rob and Carter, and the work we did with the Taiwan government, especially in

the absence of the U.S. military at that time. Currently I give numerous workshops on importing and exporting in which I often refer to the importance of the various American Chambers of Commerce overseas. Thanks for putting this together and best wishes for the future of the Chamber.

Robert Morehouse

1966-1967 | Citibank

In my day, the Chamber had just 60-some member companies. Our “office,” in the Friends of China Club on HuaiNing Street, was merely a beat-up wooden desk and a broken-down chair, and the staff was a woman who would come in on a very part-time basis to deal with mail and send out notices of meetings. Meeting minutes, and communication with members in general, were minimal. Though economically the Taiwan caterpillar was showing signs of becoming a butterfly, I found that some members weren't getting the message and didn't see that we needed a more dynamic Chamber. I tried to pattern Taipei on the Tokyo Chamber, where some of my First National City Bank colleagues had been senior movers, and brought the Japan chamber president to Taipei to address a luncheon meeting and describe Tokyo's organization, activities, and committee work. Eyes were opened, but it was a close call later to get the votes needed to increase dues and hire a permanent executive secretary. What did we try to do for the membership? The normal panoply of AmCham roles (early phase), plus attempts at Taiwan-specific assistance in trying to unsnarl government red tape. Look magazine ran a picture story on me in May 1967, in which I described many local managers (our members) as getting gray-haired with frustration, since “battling the [Taiwan] bureaucracy is our biggest and constant headache.” But I also boosted the island as an excellent place for investment, noting that the parent companies were happy they made the decision to locate in Taiwan. Thanks so much for taking the trouble to find me! I'm absolutely delighted to hear from you, and to see the evidence that our once oh-so-small and homeless Chamber is alive and thriving.

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Taiwan’s Growing Reputation in Medical Tourism p ho t o s : c o urt es y o f Tai wan M edi c al S ervi c es I n t ern at i o n ali z at i on Ac t i on P l a n

t o u r i s m B u r e a u , R e p. o f C h i n a

s global travel becomes increasingly commonplace, new kinds of “niche” tourism have surged in popularity, and modern tours now cater to every taste and interest, from soaking in spas, to climbing mountains, to cooking and eating local cuisine. And while Taiwan has long been famous for its hot springs and mountains and cuisine, it is now starting to make its mark in another new “niche” travel market: medical tourism. Defined as traveling across borders to receive medical care, medical tourism is a small but fast-growing industry that is dominated by Asian countries, especially Thailand, Singapore, and India. And now Taiwan, with its first-rate hospitals and highly trained medical personnel, is making an impact in medical tourism, and the Tourism Bureau has targeted it as a lucrative potential market. Taiwan has several significant advantages in competing in this field. It offers worldclass medical care and a high level of spoken English, and many of its doctors and technicians have trained overseas, often in the United States. Taiwan has also made large investments in its healthcare facilities, and its medical equipment is often better and newer than at older hospitals in the United States and Europe. People seek overseas medical treatment for several reasons. Many medical tourists

are from Europe, Canada, and other places where there are long waiting lists for elective surgeries like joint replacements. Patients who want cosmetic surgery also tend to travel overseas, because cosmetic procedures are not often covered by their health-insurance policies. Others go abroad because their insurance coverage is insufficient to meet the costs of surgeries and other complex treatments. There is also an argument to be made for the experience that comes from specialization. A Taiwan-based doctor specializing in joint replacements, for example, is likely to be far more practiced than many of his overseas counterparts. But the main reason for medical travel is the price. Patients who travel to Taiwan can get first-rate service and medical expertise at a very reasonable cost, as prices in Taiwan are often 75% lower than in the United States, where healthcare costs are among the highest in the world. According to Formosa Medical Travel, a medical tour organizer, the cost in the United States of a knee replacement – a procedure that replaces the entire joint with an artificial one – averages US$45,000 to $60,000. In Singapore, the same operation would cost about $20,000; and in Thailand about $13,000. In Taiwan, a patient can have a knee replacement done for about $10,000.

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Taiwan offers comparable savings for other procedures, also according to Formosa Medical. An angioplasty – an operation that dilates a cardiac artery and allows more blood to flow through it – is US$6,000 to $7,000 in Taiwan, compared with $55,000 to $60,000 in the States. Similar savings exist on cardiac bypass operations, spinal fusions, and many other operations. Due to the prevalence of liver disease in Taiwan, the island specializes in liver transplants, with savings of more than $200,000. Despite its advantages, Taiwan remains a small player in medical tourism. Its main competitors in Asia – Thailand, Singapore, and India – have significant head starts and attract far more revenue and many more patients. Taiwan’s total annual revenue from the new industry amounts to only about US$20 million per year, compared with Singapore at $1.2 billion and Thailand at more than $12 billion. But Taiwan has made significant strides, and in the past three years alone, a total of 12 hospitals in Taiwan have received accreditation from the U.S.-based Joint Commission International (JCI). The JCI has been assessing the quality of overseas hospitals since 1999, and has performed hospital checks in more than 80 countries. An independent, not-for-profit agency, the JCI issues two types of assessments. The first, called JCI accreditation, covers a hospital’s overall quality and commitment to patient care; the second are

JCI certifications for the treatment of specific diseases or conditions, verifying a high level of expertise in the treatment of those diseases. Taiwan’s best-known medical tourism hospitals are Minsheng General Hospital in Taoyuan and the Taipei Medical University-Wan Fang Medical Center in Taipei. In 2006, Minsheng General became the first hospital on the island to receive JCI accreditation, and it was re-accredited by JCI in 2009. It has also earned JCI certification for the treatment of Diabetes Mellitus Type Two and chronic kidney disease. Taipei Medical University was likewise first accredited in 2006 and re-accredited in 2009. Several other hospitals in Taiwan have also been awarded JCI certifications for the treatment of specific diseases; the JCI website has a complete list of hospitals in Taiwan that it has accredited and/or certified. While the majority of medical tourists in Taiwan are from North America and Europe, another fast-growing market for Taiwan is China. The first mainland medical tourists have already

sampled Taiwan’s medical facilities, having gone to Taipei-area hospitals for scans and other simple procedures. Taiwan’s cultural similarities with China appeal to mainland travelers, while its hospital facilities and professional staff compare favorably to those on the mainland, which are often overcrowded and unsanitary. However, a few hurdles stand in the way of increased medical tourism from across the Taiwan Strait. Prices in Taiwan are higher than in China, and the current visa structure makes it difficult for mainland medical tourists to remain in Taiwan for extended procedures or follow-up treatments. As a result, the first wave of mainland medical tourists will likely opt for physical checkups and screenings, rather than complicated procedures. But given its recent surge into the medical tourism market, and its strong stable of newly accredited hospitals, Taiwan is well positioned to attract a growing slice of the mainland market, as well as the medical travel market in general.

A comprehensive list of Taiwan hospitals, with contact information, can be found on the Tourism Bureau website, at eng.taiwan.net.tw/ m1.aspx?sNo=0000248&t=l3&lid=64 A list of hospitals in Taiwan (and elsewhere) that have been accredited by JCI, including accreditation dates and specialty certifications, can be found at http://www.jointcommissioninternational.org/jci-accredited-organizations/ Many health insurers will pay for overseas medical care. In general insurers are happy to pay for overseas treatment for the same reason that patients seek it out: because it is less expensive.

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Are You Reading a Borrowed Copy? The cost of a year's subscription to Taiwan Business TOPICS is so economical – NT$1,500, or about what you might pay for a single business lunch – that there's no need to have to rely on your friends or colleagues to see the magazine. As a subscriber, you'll have your own copy mailed directly to your home or office, so you'll be sure not to miss any of the vital information carried in TOPICS.

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TOPICS can be found in the Eslite, Kingstone, Caves and Hess bookstores in Taipei, Taichung and Kaohsiung.

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AmCham Companies through the Years As AmCham Taipei turns back the clock during this anniversary year to review its six decades of service, it is also asking its member companies to share photo remembrances of their early presence in Taiwan.

Citibank, then known as First National City Bank, held the ribbon-cutting ceremony on February 15, 1965 to open its first branch in Taiwan, located at 15 GuanQian Road in downtown Taipei. Finance Minister Chen Chingyu was among the dignitaries attending the ceremony and a later reception at the Grand Hotel.

Two years after its establishment in 1969, 3M Taiwan –then known as the 3M Taiwan Trading Ltd. – opened its first factory, located in Dayuan in Taoyuan County. The site is now the company’s Distribution Center. The sign on the gate is to welcome 3M’s president, who came to Taiwan for the opening ceremony.

FedEx entered the Taiwan market in 1990 as part of the company’s purchase of the Flying Tiger Line, which had long been serving the Taiwan-North American market for express delivery. This Flying Tigers ad appeared in a 1983 publication of Trade Winds, which was then also an AmCham Taipei member company.

At the start-up ceremony in 1979 in Kaohsiung for the first plant of the China American Petrochemical Co. (CAPCO), the dignitaries cutting the ribbon were, left to right, CAPCO Chairman Jerome S.N. Hu, Amoco Chemical Co. President Richard H. Leet, and Chairman S.Y. Wang of the Central Trust & Holding Co. CAPCO, which makes PTA, the raw material for polyester fiber and chips, is a joint venture between Amoco (later acquired by BP) and the state-owned CPC Taiwan Corp. (formerly Chinese Petroleum).

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