t
A
IN he R Re DU et po ST ail S rt o RY ec n FO tor CU S
THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI
Taiwan Business
Topics
Unlocking Banking’s Future 開啟銀行產業的未來
TAIWAN BUSINESS TOPICS March 2012 | Vol. 42 | Issue 3 中華郵政北台字第 號執照登記為雜誌交寄 5000 3_2012_Cover.indd 1
NT$150
March 2012 | Vol. 42 | Issue 3 www.amcham.com.tw
ISSUE SPONSOR
2012/4/1 10:42:50 PM
CONTENTS NEWS AND VIEWS
6 Editorial
Restoring Faith in Food Safety
ma rCh 2 0 1 2 vOlumE 42, N umbE r 3 一○一年三 月號
確保食品安全 讓消費者安心
7 Taiwan Briefs Publisher
Andrea Wu
By Don Shapiro
發行人
11 Issues
吳王小珍
Editor-in-Chief
Art Director/
New Opportunities to Partner with Fulbright; Linking Health and Economic Growth
總編輯
Don Shapiro
沙蕩 美術主任 /
Production Coordinator
Katia Chen Staff Writer
Jane Rickards
後製統籌
陳國梅 李可珍
Manager, Publications Sales & Marketing 廣告行銷經理
Irene Tsao
曹玉佳
Translation
Zep Hu
傅爾布萊特計畫徵求合作夥伴；提 昇國民健康 促進經濟成長
採訪編輯
翻譯
胡立宗
COVER SECTION
14 Unlocking Banking’s Future
開啟銀行產業的未來 By Don Shapiro 撰文／沙蕩
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 2012 by the American Chamber of Commerce in Taipei, ROC. All rights reserved. Permission to reprint original material must be requested in writing from AmCham. Production done in-house, Printing by Farn Mei Printing Co., Ltd. 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○一年三月 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 2011-2012 Governors: William E. Bryson, William Farrell, Christine Jih, Steven Lee, Neal Stovicek, Carl Wegner, Bill Wiseman. 2012-2013 Governors: Richard Chang, Sean Chao, Michael Chu, Revital Golan, David Pacey, Ashvin Subramanyam, Lee Wood, Ken Wu. 2012 Supervisors: Douglas Klein, Richard Lin, Catherine Teng, Fupei Wang, Jon Wang.
COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Winnie Yu; Banking/ Victor Kuan; 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, Ashvin Subramanyam; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Mark O’Dell, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Scott Meikle; Manufacturing/ Albert Li; Marketing & Distribution/ Christopher Fay, Wei Hsiang, Gordon Stewart; Medical Devices/ Nelson Hsu, Daniel Yu; Pharmaceutical/ David Lin, Edgard Olaizola, Jun Hong Park; Private Equity/ William Bryson, Steve Okun; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein; Sustainable Development/ Kenny Jeng, Davis Lin; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, R.C. Liang, John Ryan, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Trade/ Stephen Tan; Transportation/ Michael Chu; Travel & Tourism/ Pauline Leung, David Pacey.
A series of developments is pointing to some new directions for Taiwan's banking industry. After several years of seeming lack of interest in promoting industry consolidation, the government is again talking about tackling the "over-banking" phenomenon in the sector. At the same time, cross-Strait negotiations may soon open the way for domestic banks to engage in renminbi business, and the Financial Supervisory Commission will soon go through some reorganization. 一連串的跡象顯示，台灣的銀行產業 將有一些新的發展方向。政府近年來對於鼓勵銀行整併興趣缺缺，但最近 又開始提及家數 過多的陳年問題。同時，兩岸或許很快就能完成貨幣清 算協議，允許國內銀行經營人民幣業務，而主導金融市場的金管會也將重 整，為政策引進新動能。
22 Interview with FSC Chairman Chen Yuh-chang “The financial status is quite sound.” TAIWAN BUSINESS
26 Textiles Still Going Strong
Once written off as a “sunset industry,” the sector has relied on innovation, technology, and a secure supply of raw materials to stay competitive. By Timothy Ferry
ANALYSIS
30 Why Taiwan’s Democracy Matters
The creation of an open political system is a rare achievement that deserves international encouragement and support. This is the second in a series of articles on Taiwan’s importance. By J. Bruce Jacobs
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marc h 2012 • Volume 42 n umbe r 3
InDuSTrY
F
CUS
ISSUE SPONSOR
Satisfying consumer expectations: a report on the retail Sector
leading the way in asia, africa and the middle east 34 Hypermarts: Boxed In By Alan Patterson
37 Taiwan’s Online Retail Business Soars By Alan Patterson
40 Era of Change in Taiwan’s Book Market By Dennis Engbarth
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 2011, standard chartered delivered its ninth 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 many prestigious awards, including the banker’s bank of the Year awards, Global bank of the Year and bank of the Year in asia. 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 nearly 87,000 staff.
42 The New Face of Fast Food By Aimee Wong
45 Formosa Optical Dominates the China Market
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 Jane Rickards
BEHIND THE NEWS
Standard chartered in Taiwan is here for Good 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 88 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.
46 Getting Taiwan into the TPP
Despite determination to join, time is needed to prepare certain sectors of the domestic economy.
Standard chartered bank here for people, here for progress, here for the long run here for good
By Don Shapiro
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Restoring Faith in Food Safety
F
ollowing a series of scandals and controversies over the past several years, many Taiwanese consumers have lost confidence in the safety of the food available in this market. First came the shock of the 2008 episode in which the industrial additive melamine was found to have contaminated some supplies of powdered milk and other foods. That time much of the blame could be placed on lax regulation in China, though the presence of the chemical had initially gone undetected in goods imported into Taiwan. Last year’s plasticizer scare, however, was a case of unscrupulous local manufacturers seeking to cut costs by using potentially toxic materials as clouding agents in foods and beverages. The culprits have received prison sentences, but not before serious damage had occurred: panicked consumers, substantial financial losses to innocent retailers and distributors, and a blow to the image of Taiwan products in export markets. More recently, the spotlight has shifted to agricultural products, with allegations of officials covering up an outbreak of a highly pathogenic strain of bird flu at domestic chicken farms, as well as the discovery that illegal and potentially dangerous feed additives were given to local swine by certain hog farmers. Given that background, it is understandable that many members of the public are skeptical about the government’s plan to allow imports of U.S. beef containing traces of the leannessenhancing additive ractopamine once a Maximum Residue Level (MRL) – which may turn out to be as low as 10 parts per billion – is set. Public discussion of the issue has been both heavily politicized and awash with misinformation, obscuring the point that
no scientific evidence exists that reasonable levels of ractopamine pose a risk to human health. In fact, in the United States, where beef is a far more important part of the diet than in Taiwan, millions of people are consuming beef products every day without incident. To assure food safety – and restore public confidence in that safety – it is imperative for the government to go beyond shortterm crisis management to establish a well-organized, wellequipped, professionally staffed unit responsible for the research, testing, and certification of food products, as well as public communication when incidents occur. The recent appointment of a cross-agency Cabinet task force under Vice Premier Jiang Yi-huah to study the issue is a good start, but it needs to be followed up by establishment of a permanent body that can tackle the problem in a centralized way. One of the current problems is that too many different government agencies – including the Department of Health, Council of Agriculture, and Ministry of Economic Affairs – have a role in different aspects of food safety, but no one office has overall authority, and no one voice speaks for the government when a crisis arises. Too many unfortunate incidents have happened already. It is time to re-engineer government’s regulation of food safety, referencing how other countries deal with the matter. In that effort, AmCham companies in the food and retail sectors with broad international experience are available as sources of information, as is the Singapore-based NGO, Food Industry Asia.
確保食品安全 讓消費者安心
台
灣過去幾年不斷發生食品安全
原禽流感疫情，接著豬隻飼料也被發現
組，專責食品的研究、檢測、認證，以
事件，導致許多消費者不再信
攙雜有害的工業用重金屬。
及事件發生時的公眾說明。
任市面上的食品品質。
經過上述事件，不難理解為何許多
政府最近指派行政院副院長江宜樺成
首先是2008年的「毒奶」事件，部
民眾質疑政府有條件解禁含瘦肉精美
立跨部會食品安全危機處理小組，這雖
分奶粉與奶製品被發現攙雜化工原料三
國牛肉的決定。據稱，在制定萊克多
然是個不錯的起步，但未來仍需成立常
聚氰胺。雖然多數批評集中在中國的食
巴胺（r a c t o p a m i n e）最高殘留標準
設機制全權處理相關問題。現在的問題
品管理鬆散無章，但台灣海關未盡查
（M R L）後，政府即將放行帶有微量
之一是權責太過分散、沒有統籌機關，
驗職責、放行有毒奶製品也應負部分
瘦肉精的美牛，而其M R L可能只有
行政院衛生署、農委會，及經濟部都只
責任。2011年的塑化劑風波則源自於
10ppb。美牛爭議已經高度政治化、且
管一部分，當危機發生時就出現各說各
國內不肖廠商為節省成本以有毒成份
充斥捕風捉影之談，使人忽略其實尚無
話的情形。
DEHP製成起雲劑，提供給中下游食品
科學研究發現合理限度內的瘦肉精殘留
有太多不幸事件已經發生，現在已是
與飲料業者。違法業者雖然遭到判刑，
會威脅人體健康。事實上，美國飲食的
時候借鑒其他國家經驗，重整台灣的食
但嚴重傷害已經造成：消費者信心崩
牛肉使用度遠高於台灣，而許多人天天
品安全法規制度。對此，具有充分國際
盤，無辜零售與經銷商承受龐大損失，
食用牛肉製品都沒出現問題。
經驗的台北市美國商會食品與零售業相
台灣食品的國際形象一落千丈。
要保障食品安全、恢復消費者信心，
關會員，以及總部設在新加坡的非政府
今年以來，農牧業成為食品安全的最
政府必須拋棄走短線的危機處理心態，
組織亞洲食品產業協會（FIA），非常
新焦點：先是官員據稱隱匿本土性高病
確實建立組織與設備完善的專業安檢小
樂意提供所需資訊。
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— BY do n sh ap i ro —
Economic Indicators
MACROECONOMICS MODERATE GROWTH WITH A WATCH ON PRICE STABILITY Taiwan’s Central Bank of China (CBC) has cautioned that inflationary pressure may build later this year due to rising global oil prices. Governor Perng Fai-nan said price stability would be the Bank’s main priority in the months ahead. In addition, the government has m a d e k n o w n t h a t i t i s c o n s i d e ring allowing the Taiwan Power Co. (Taipower) to increase electricity rates this year to help offset the utility’s mounting losses. Premier Sean Chen told reporters that such a development “shouldn’t be described as a price hike, but rather as a resumption of the normal pricing mechanism.” Some opposition legislators have criticized the idea of raising rates, blaming the state-owned company’s yawning deficit on bad management and high personnel costs, but the government has responded that fuel procurement accounts for some 80% of the expenditures. As generally expected, the March quarterly meeting of the CBC Board decided to leave interest rates unchanged for the third straight Taiwan stock exchange index & value
THE RED LINE SHOWS CHANGES IN TURNOVER AND THE SHADED AREA CHANGES IN THE TAIEX INDEX.
8250
185
8000
170
7750
155
7500
140
7250
125
7000
110
6750
95
6500
80
6250
65
6000
50
February chart source: TwSE
Current Account Balance (2012 Q4) 12.10 Foreign Trade Balance (Feb.) 3.25 New export orders (Feb.) 33.90 Foreign Exchange Reserves (end Feb.) 394.43 Unemployment (Jan.) 4.18% Overnight Interest Rate (Mar. 1) 0.40% Economic Growth Rate (2011 Q4) p 1.89% Annual Change in Industrial Output (Feb.) 8.40% Annual Change in Consumer Price Index (Jan.) 2.37%
Year Earlier 9.44 2.79 28.87 390.69 4.64% 0.27% 6.50% 12.99% 1.10%
NOTE: P=preliminary
quarter, holding the discount rate at 1.875%. In a statement, the Bank noted that international economic conditions have recently shown some signs of stabilization, citing renewed progress in the Greek sovereign debt restructuring and moderate expansion in the U.S. economy. At the same time, it noted that international oil prices remain high and “vulnerabilities still exist in the financial systems of advanced countries.” With the domestic economy growing at only a moderate pace and inflationary pressure likely due to global oil prices, the statement said “the Board judges that a rate-hold is consistent with the CBC’s mandated objectives to maintain price and financial stability.” Currently the Directorate General of Budget, Accounting and Statistics is forecasting 3.85% economic growth for 2012, slightly lower than last year’s 4.04%. In a report delivered to the Legislative Yuan in mid-March, CBC Governor Perng said the Taiwan economy is facing four major headwinds this year: weaker exports and imports, slowing private consumption, decreasing private investment, and declining industrial production. He said these factors began influencing domestic
SOURCES: MOEA, DGBAS, CBC, BOFT
economic conditions from the second of 2011 when the world economy was impacted by the sovereign debt crisis in the Eurozone.
CROSS-STRAIT FUJIAN ECONOMIC ZONE SPARKS CONTROVERSY The Taiwan government’s Mainland Affairs Council (MAC) has splashed cold water on China’s plans to develop the Fujian Province island of Pingtan into the Pingtan Comprehensive Experimental Zone to promote cross-Strait economic cooperation. In denying China’s intimations that the project is being co-sponsored by Taiwan, MAC Deputy Minister Kao Charng criticized the PRC’s “blatant” efforts to promote the project for “expedient political purposes.” Among MAC’s objections has been the depiction of the project as being carried out under the principle of “one country, two systems,” a formula that most Taiwanese find unacceptable. In response to the comments from Taiwan, the spokesman for the Taiwan Affairs Office in Beijing faulted MAC for “often playing a passive role in the development of cross-Strait negotiations.”
Unit: NT D billion
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OPPOSED TO RACTOPAMINE — Dozens of protestors demonstrated in front of the Executive Yuan in early march, calling on the government not to relax current restrictions on U.S. beef from cattle feed with a leanness-enhancing additive. photo : ap/wally santana
DOMESTIC NEW TWISTS AND TURNS IN U.S. BEEF CONTROVERSY The question of whether Taiwan should relax its prohibition on meat products containing traces of the leanness-enhancing feed additive ractopamine has dominated the headlines recently. The ban has resulted in a long-running dispute with the U.S. government, which maintains that there is no scientific evidence that controlled quantities of ractopamine, as widely used by American ranchers, poses any threat to human health. In an effort to end the disagreement, which has soured economic relations with the United States and blocked the holding of bilateral Trade and Investment Framework Agreement (TIFA) talks since 2007, the Taiwan government after the Chinese New Year held a series of meetings in which invited experts presented their views as to whether Taiwan should set a Maximum Residue Level (MRL) for ractopamine instead of maintaining its current zero-tolerance policy.
8
Although the participants did not arrive at a consensus, Premier Sean Chen apparently found the arguments in favor of an MRL more convincing. In early March, he announced plans to lift the ban on ractopamine later this year under four conditions: that a safe level of the presence of the chemical is established, that the opening would apply to beef but not pork, that meat imports would be clearly labeled by country of origin, and that the import of internal organs would be excluded. The announcement set off a series of protest demonstrations by hog farmers, consumer protection groups, and students, taking the government to task for caving in to U.S. pressure and putting public health and the welfare of farmers at risk. Taiwan has a substantial pork industry, and hog raisers are concerned that easing the restrictions on imported beef will open the way for a similar easing with regard to pork, increasing the competition in the market. Legislators from various political parties also introduced bills designed to limit or block the ability of the executive branch to
change its policy on ractopamine. In the meantime, testing of meat products already in the market uncovered the presence of ractopamine in the beef at some leading restaurants and retail outlets, prompting the government to announce a tightening of the inspection procedures on import shipments. Cases were also found of its use in domestic pork, geese, and duck, and more worrisomely, there were also discoveries of more powerful leanness-enhancing additives, proven to be unsafe for human consumption, in some local pork. The hog-raisers’ association blamed a small number of “rogue” farmers for the abuse, and others said the disclosure of the news was part of a “plot” to discredit the anti-ractopamine movement.
ALLEGED COVER-UP IN BIRD FLU EPIDEMIC In another agriculture-related issue, an outbreak of the H5N2 avian flu virus led to the culling of some 60,000 chickens in poultry farms in Changhua County and the Tainan area, amid accusations that government officials
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sought to cover up the epidemic. In the wake of those allegations, Director Hsu Tien-lai of the Council of Agriculture’s Bureau of Animal and Plant Health Inspection and Quarantine (BAPHIQ) tendered his resignation in early March and the case was referred to the Control Yuan for investigation. Prosecutors have also been looking into the possibility of criminal liability. The outbreak was discovered by award-winning documentary filmmaker Kevin Lee, who on December 25 last year sent BAPHIQ a dead chicken he suspected was infected with the H5N2 bird flu, also notifying the bureau of the location of the farm. The agency responded that the virus was not highly pathogenic. More than two months later, BAPHIQ reversed itself to confirm the existence of the epidemic and begin action to prevent its spread. BAPHIQ officials insist there was no cover-up, saying that it had to await the results of lab tests and weigh other factors before it could conclude that a serious outbreak had occurred. But opposition political figures have suggested that the government officers were seeking to prevent disclosure of the problem before the January 14 elections so as to avoid a controversy that might impair President Ma ying-jeou’s
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candidacy for reelection to a second term. Tapes that emerged of discussions of the epidemic in a bureau meeting lent credence to suggestions that officials purposely delayed taking action. The Department of Health offered assurances that unlike the H5N1 virus, there is no evidence that the H5N2 strain can be transmitted from birds to humans, although it is highly infectious among fowl.
CHEN CHU ASSUMES DPP ACTING LEADERSHIP With the resignation of Tsai Ingwen as chairman of the opposition Democratic Progressive Party (DPP) following her loss in January’s presidential election, Kaohsiung mayor Chen Chu has been chosen as acting chairman to serve until the party elects a new leader on May 27. Former Tainan County Commissioner Su Huan-chih has already announced his candidacy for the post, while former Premier Su Tseng-chang is also widely expected to throw his hat in the ring.
BUSINESS COO TRIUMVIRATE NAMED IN TMSC RESHUFFLING Chairman and CEO Morris Chang, 81, in early March announced a
ACTING CHAIRMAN — Kaohsiung Mayor Chen Chu will lead the opposition Democratic Progressive Party until its elections in May. photo : cna
management reshuffle that appears to be part of his succession strategy at the Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chip-maker. Three senior vice presidents in charge of different departments were elevated to the positions of executive vice president and co-Chief Operating Officer: R&D head Chiang Shang-yi, head of operations Mark Liu, and business development chief C.C. Wei. Chang, who founded TSMC in 1987 as the world’s first chip foundry – a business model that has since been widely emulated – told journalists that he has no set timetable to step down, although he previously disclosed plans to do so by 2014. Appointment of the co-COOs is seen as a try-out to give the three executives the opportunity to vie to succeed him.
MICRON INCREASES STAKE IN DRAM-MAKER INOTERA
CHECK THAT CHICKEN — Government inspectors conduct tests at Taipei’s wholesale poultry market after reports of avian flu outbreaks in central and southern Taiwan.
The bankruptcy protection filing in late February of Japan’s Elpida Memory Inc. is expected to have major ripples throughout Taiwan’s DRAM industry, aiding some play-
photo : cna
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(US$167 million) capital increase. The private placement has made Micron the largest investor in Inotera, with a share of around 40%, while Nanya’s stake will drop to 26%. Nanya and Inotera are expected to see increased sales as Elpida customers look for other, secure sources of supply.
China Airlines (CAL) this month will start flights to three new destinations in Japan, following the signing of an open-skies agreement between Taiwan and Japan. The Taipei-Kagoshima and TaipeiShizuoka routes will be launched on March 25, with flights every Tuesday, Thursday, and Sunday. It will add the Taipei-Toyama route on April 16, with flights on Mondays and Fridays. All three locations are popular tourist destinations. In addition, CAL will be increasing its scheduled flights on the existing routes to Tokyo Narita, Osaka, Fukuoka, and Nagoya, bringing the total weekly number of Japan flights to 119. In addition, Japan Airlines on April 22 will inaugurate direct flights from Narita Airport in Tokyo to Boston, the first direct service from Asia to the New England hub. The code-shared flights with American Airlines will initially be four times a week, increasing to daily service in June, and will be the first route to utilize JAL’s new Boeing 787 Dreamliner aircraft.
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TAIWAN'S JANUARY-february TRADE FIGURES (YEAR ON YEAR COMPARISON)
ASEAN
Japan
TOTAL
4.84 8.2
2011
7.4
2.96
2012
4.9 7.7
2011
2.7
8.84
16.8
18.9
HK/China
6.14
2011
2012
2012
4.5 4.8
4.2 4.63
Europe
3.6 4.8
U.S. 4.3 5.14
ers and harming others in the already troubled sector. Share prices fell, for example, at Powerchip Technology, which has had a strategic partnership with Elpida, relying on the Japanese company as a source of technology and as a customer for its output. In addition, Powerchip and Elpida have been joint-venture partners in the local Rexchip Electronics Corp. Other Taiwan-based memory-chip manufacturers that have had close business relations with Elpida include Walton Advanced Engineering and A-Data Technology, as well as packaging and testing services provider Powertech Technology. The main beneficiaries of Elpida’s difficulties are expected to be Samsung and Hynix of South Korea, plus Micron Technology of the United States. In a decision pre-dating the E l p i d a b a n k r u p t c y, M i c r o n h a s increased its stake in Taiwan’s Inotera Memories, a joint venture with Nanya Technology of the Formosa Plastics Groups, by purchasing all new shares being issued in an NT$5 billion
s
NEW AIR ROUTES OPENED TO JAPAN AND BOSTON
AU Optronics Corp. (AUO), Taiwan’s second largest maker of LCD panels, said in mid-March that it will appeal a verdict by a U.S. district court in San Francisco that found the company and two of its executives guilty of price-fixing. “We exchanged information, but we did not participate in a conspiracy to fix prices,” AUO Chairman K.Y. Lee told a media briefing in Taipei. AUO and a number of other leading panel manufacturers in Korea, Japan, and Taiwan were charged by the U.S. Department of Justice with conspiring to fix prices. The other companies, including Taiwan’s Chimei Innolux and Chunghwa Picture Tubes, pleaded guilty and paid heavy fines. AUO insisted on its innocence and decided to let the case go to trial. While finding an AUO vice chairman and vice president guilty, the San
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Francisco jury acquitted two other company executives, while a mistrial was declared in the case of another AUO defendant.
AUO TO APPEAL U.S. VERDICT IN PRICE-FIXING CASE
THE CASE CONTINUES — AUO Chairman K.Y. Lee says the company will appeal the verdict of a U.S. federal court that it is guilty of price fixing.
e
2011
2012
2011
2012
Imports
41.2 44.5
a
43.76 46.6
t
Exports
2011
2012
Unit: US$BN Source: BOFT
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Issues
New Opportunities to Partner with Fulbright The prestigious U.S. international scholarly exchange program is seeking corporate collaborators.
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ollowing a change in its operating status enabling it to provide tax deductions to donors, the Fulbright Program in Taiwan is now seeking to engage in cooperative programs with major multinational and domestic corporations in this market. The Fulbright Program, which describes itself as the “flagship international educational exchange program sponsored by the U.S. government,” was created in 1946 under legislation introduced by the late Senator J. William Fulbright of Arkansas and has been operating in Taiwan since 1957. Over the years, Fulbright Taiwan has brought more than 1,100 American students and scholars to Taiwan for study and research, and the more than 1,500 Fulbright alumni from Taiwan who have gone in the other direction include 24 university presidents, three current and 34 past Cabinet members, and nine grand justices. For companies looking for meaningful ways to engage in corporate social responsibility programs, Executive Director William C. Vocke, Jr. of Fulbright Taiwan cites a number of advantages – the prestige value aside – of collaborating with the Fulbright Program. “One is the quality of the program and the people, and the opportunity to have a real impact in changing lives. There’s also the important mission of the program – to bring a little more knowledge and a little less conflict into the world – plus the track record of being highly successful and efficient.” Fulbright Taiwan offers several types of programs for potential partnership with participating corporations. The first is Joint Fellowships to either bring American students and scholars to Taiwan for a year or to send their Taiwanese counterparts to the United States for a period of one to five years of study or research. These could be in any academic discipline of interest to the sponsor, and can focus on scholarly activity at any level from undergraduate studies to Ph.D. training or post-doctoral research. The hyphenated name of the fellowship – as in the Fulbright-Corning fellowship in Ireland – brings the benefit of added exposure to the corporate partner. The donor commitment must cover at least three to five years, so that Fulbright is assured of the continuity of the program, and the annual contribution comes to US$15,000 to $58,000 to send
傅爾布萊特計畫 徵求合作夥伴 美國知名國際學者交流計畫在台尋求新的 贊助企業
台
灣傅爾布萊特計畫的運作方式出現改變， 現今企業贊助者已可獲得稅賦減免，因此 負責計畫執行的「學術交流基金會」正尋 求更多國內外廠商共同參與。 自許為「美國官方贊助的一流國際教育交流計 畫」，傅爾布萊特計畫是在1946年由聯邦參議員 威廉．傅爾布萊特（阿肯色州，民主黨籍）所提 案成立，而台灣的分支機構已自1957年運作至 今。超過半世紀的時間裡，1,100位美國人士獲得 獎助赴台進修與研究；1,500位台灣人士獲贊助前 往美國，其中有24位後來成為大學校長，9位成為 大法官，以及4位現任閣員及33位卸任閣員。 對於有意展現社會責任的企業，學術交流基金 會執行長李沃奇（William Vocke）表示，參與傅 爾布萊特計畫除了有助提升形象，還有其他許多 優點，其中之一是，計畫本身及參與者的水準夠 高，對參與學者生涯發展也會產生顯著影響。此 外，計畫本身負有一項重要使命，即增進瞭解、 降低衝突，而且計畫向來以成果豐碩、績效優良 著稱。 台灣傅爾布萊特計畫包括多項可供企業參與的 子計畫，首先是獎助學金計畫，可協助美國學生 與學者赴台1年，或是台灣人士前往美國研讀1至 5年。贊助者可任選獎助學科，也可以選擇贊助碩 士、博士或博士後研究。聯名獎助計畫將可提高 企業能見度，例如在愛爾蘭的名稱即為「傅爾布 萊特－康寧」計畫。
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Issues Taiwanese fellows to the United States or NT$600,000 to $1.3 million for fellowships in Taiwan, depending on the nature of the project. Additional funding, equal to about 20% of the total cost, is provided by the State Department to cover recruitment or support activity carried out in the United States. A second type of corporate involvement is sponsorship in a given county of Fulbright’s English Teaching Assistant (ETA) Program. The program brings over outstanding recent graduates from top U.S. universities to co-teach English in local schools. This year 28 young people are taking part, assigned to relatively remote areas of Yilan County and Kaohsiung with support from the local governments. Next year a contingent will be added in the offshore island of Kinmen. “The ETAs we’ve attracted are some really special young people, and the program has been a life-changing experience for the students, the teachers, and the people in the local communities,” says Vocke. “We’d love to be able to extend the program to additional counties, especially to relatively underprivileged areas, as well as to expand in the existing counties.” Corporate sponsors would be asked to help cover the cost of six to eight teaching assistants. “These programs represent an effective way of enhancing understanding and friendship between the United States and Taiwan,” says Vocke, “and corporate donors can feel assured that their money will be used well.” He invites interested parties to contact him at wvocke@fulbright.org for more information. —– By Don Shapiro
贊助廠商必須至少參與3至5年，以確保獎助 制度的穩定度。依性質不同，每年的贊助金額約 為：台灣人士赴美1.5萬美元至5.8萬美元，美方 人士赴台則為新台幣60萬元至130萬元。約合總 費用20%的相對資金將由美國國務院負責，以支 應美國境內的召募或後勤服務。 其次是協助特定縣市中小學英語教育的英語協 同教學教師計畫（ETA）。此一子計畫主要目標 在召募美國高等學府優秀畢業生至中小學協助英 語教學。今年共有28位美國青年參與，前往宜 蘭、高雄的較偏遠地區。明年的ETA還將納入金 門。 李沃奇說，「ETA召募到的真的都是非常特別 的青年人，對學生、對老師，或是當地社群，都 是非常特別的體驗」，「我們非常希望將計畫推 廣至其他縣市，特別是發展相對落後的區域，當 然也希望擴大現有參與縣市的計畫規模」。贊助 企業可能必須負責6至8名助教的費用。 李沃奇說，「這些計畫足以有效增進美台之 間的瞭解與友誼」，「而且企業贊助者可以安 心，因為每一分錢都會用在刀口上」。有意參與 的企業可以直接聯繫李沃奇（電子郵件信箱： wvocke@fulbright.org.tw）
—撰文／沙蕩
Linking Health and Economic Growth The head of Eli Lilly stresses the need to foster innovation in medical care.
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ohn C. Lechleiter, who holds the positions of chairman, president, and CEO of U.S.-based pharmaceutical manufacturer Eli Lilly and Co., addressed an AmCham Taipei luncheon meeting in March on the theme of medical innovation and how it can contribute to better health and economic growth in Taiwan and around the world. Referring to the inextricable link between health and economic development, he noted that “a growing economy makes it possible for countries to invest more in improving health, and there is also a strong case that good health is a fundamental precondition for economic development.” Lechleiter cited a Harvard University study showing that “better health played a key role in East Asia’s sustained economic growth in the second half of the 20th century.” It contributed to a rapid increase in the labor supply, and longer life expectancy spurred increased savings for retirement, leading to extremely high rates of capital accumulation. The Harvard researchers estimated that each extra year of life expectancy raises a country’s per capita GDP by about 4%. Another analysis found that new medicines accounted for 40% of the sharp increase in life expectancy in the 1980s and 1990s.
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Issues 提昇國民健康 促進經濟成長 禮來公司全球總裁呼籲台灣政府支持醫 療產業持續創新
美
The introduction of innovative medicines will be increasingly important for Taiwan, Lechleiter said, because of the rapid aging of the population (by 2026, nearly 21% of the people will be 65 or older), the spread of non-communicable diseases such as cancer and diabetes, and improvements in the standard of living that lead to greater demand for healthcare. The speaker, who participated in a task force on healthcare at last fall’s APEC summit in Honolulu, said that during the past year government officials and members of the private sector throughout the region considered how the regulatory environment could be improved so as to promote a sustainable, innovation-based business model. The exercise led to agreement on the need for “regulatory convergence” – greater alignment among countries over time on the technical documents, standards, and scientific principles to be adopted in their regulatory process. “The second key to innovation, strong intellectual property protection, is essential for increasing U.S. companies’ ability to invest in Taiwan,” said Lechleiter. With regard to the pharmaceutical industry in particular, he urged establishment in Taiwan of a patent linkage system “to ensure that registration of a generic form of a patented medicine would be denied while the patent is still in force.” Such a system would require an improved system of data protection for innovative medicines, “with a protection period that is more aligned with those in other countries.” A third key to innovation cited by Lechleiter is “predictable, transparent regulation” in the approval of new medicines and medical devices. Among other benefits, this increased accountability and efficiency would provide “more timely access by patients to needed medical products.” He noted that AmCham Taipei’s Pharmaceutical Committee last year urged several concrete steps in line with new legislation that seeks to promote medical innovation. One is implementation of a negotiated annual Drug Expenditure Target (DET) system to avoid the repeated drug price cuts that have “made drug prices in Taiwan among the lowest in the world, disadvantaging patients by forcing many quality drugs out of the market.” Another would be active implementation of a portion of the new law that permits better reimbursement pricing for drugs that offer a “significant improvement” over existing medicines. “Taiwan is an example to the world of the strong positive link between health and wealth,” Lechleiter concluded. “As your country looks ahead, I believe that medical innovation is an essential element to sustaining the progress of the past half-century.” —– By Don Shapiro
商禮來藥廠全球董事長、總裁兼執行長李 勵達（John Lechleiter）三月於台北市美國 商會午餐會中強調，醫療產業的持續創新 有利台灣與全球各國提升國民健康與經濟發展。 關於兩者的緊密連結，李勵達表示，「經濟持續 成長才能不斷提升醫療水準，同樣重要的是，確 保國民健康才能推動經濟發展」。 李勵達引述哈佛大學研究報告指出，「人口健 康較佳是東亞經濟在20世紀後半能夠持續成長 的關鍵因素」。健康的國民除了代表勞動供給快 速增加，也因為平均壽命的增加而提高了因應退 休的存款金額，使得資本高速累積。哈佛研究發 現，平均壽命每增加一年將使人均所得增加4%。 另一項分析發現，1980與1990年代的平均壽命大 幅增加，四成與新藥研發有關。 李勵達認為，新藥的引進將對台灣越來越重 要，因為人口快速老化（2026年的人口將有21% 在65歲以上）、罹患癌症與糖尿病等非傳染性疾 病的人口增加，再加上生活水準提高也產生更多 醫療需求。 李勵達去年秋季曾經參與亞太經合會（APEC）夏 威夷峰會的醫療小組，他說亞太地區許多政府官員 與民間業者去年一整年都在思索法規體系的改善之 道，以鼓勵製藥產業永續、創新的經營方式。其結 論是各國必須推動法規謀合，逐步使各方法規對技 術文件、標準與科學準則的要求更為一致。 李勵達說，「創新的第二個關鍵是強而有力 的智慧財產權保障，如此美商才會更願意投資台 灣」。他特別針對製藥產業強調，台灣必須建立 專利連結制度，「以確保新藥專利仍然有效時， 學名藥不得登記上市」。此一制度必須搭配更能 保護新藥資料的機制，「且保護期必須更接近其 他國家的規定」。 李勵達認為第三個關鍵是新藥與醫材的查驗審 核過程「必須更為一致與透明」。姑且不論其他 好處，此一轉變必將增加可信度與效率，「使病 患更能即時近用所需產品」。 李勵達指出，台北市美國商會製藥委員會去年 曾經提出關於法規制定的多項具體建議，以增加 藥品創新的誘因。其中之一是實施藥品費用支出 目標制（D E T），以避免健保給付藥品價格的不 斷調降，「導致台灣的藥價居於全球最低水準， 迫使許多高品質藥品退出市場，最終對病患造成 不利影響」。另一項建議是落實獎勵制度，讓明 顯優於現有藥品的新藥能獲得更高的給付價格。 李勵達認為，「對於全球其他國家來說，台灣 證明了國民健康與國家財富息息相關」，「當台 灣放眼未來，我相信醫療創新將是延續過去半世 紀經濟發展的重要因素」。 —撰文／沙蕩
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Cover story Cover story
Unlocking Banking’s Future 開啟銀行產業的未來 BY DON SHAPIRO
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banking
A series of developments is pointing to some new directions for Taiwan’s banking industry. After several years of seeming lack of interest in promoting industry consolidation, the government is again talking about tackling the “overbanking” phenomenon in the sector. At the same time, cross-Strait negotiations may soon open the way for domestic banks to engage in renminbi business, and the Financial Supervisory Commission will soon go through some reorganization.
一連串的跡象顯示，台灣的銀 行產業將有一些新的發展方向。政 府近年來對於鼓勵銀行整併興趣缺 缺，但最近又開始提及家數過多的 陳年問題。同時，兩岸或許很快就 能完成貨幣清算協議，允許國內銀 行經營人民幣業務，而主導金融市 場的金管會也將重整，為政策引進 新動能。
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ith a new premier coming from a financial background now in office, and with the Financial Supervisory Commission (FSC) slated to undergo a major revamping in July, observers of Taiwan’s banking sector have been wondering whether new approaches to Taiwan’s financial-industry development might be in the offing. In recent years, dissatisfaction in the industry had grown as government regulators largely refrained from mapping out a clear vision for where the sector is headed. The authorities had also appeared unwilling to promote further consolidation in the highly fragmented banking sector, and the previous frequently publicized goal of establishing Taiwan as a regional financial center – which would mean benchmarking Hong Kong and Singapore as models for liberalization – was no longer being enunciated. But comments to the Legislative Yuan on March 16 by Premier Sean Chen in his second month on the job have stirred hope that the government may be returning to a bolder, reform-minded approach. Chen, whose career has been almost entirely in finance as both banker and regulator, told the lawmakers that now would be a good time to proceed with consolidation, since the banking sector currently is in sound shape in terms of
財經背景的陳冲接任行政院長，金融 監督管理委員會也將於7月完成組織調 整，關切台灣銀行產業發展的人士認 為，金融業或許有機會迎向嶄新發展契機。 過去幾年，金融業的悲觀氛圍越來越濃， 主因正在主管機關無法勾勒發展願景。相關 部會似乎不願進一步鼓勵銀行整併，打造台 灣成為區域金融中心、追上香港與新加坡的 金融自由度，也幾乎沒人再提。 但陳冲3月16日在立法院備詢時重提金融整 併，卻讓業界重燃希望，猜測政府可能改採 更為積極創新的政策。歷任財經部會重要職 務、亦曾涉足銀行實務的陳冲表示，國內行 庫目前逾放比史上最低，資本適足率也高於 法律規定，因此現在進行金融業整併或做些 事讓金融業發揮活力，是最佳時機。 公營行庫的併購（M&A）過去曾是高度敏 感的議題，但某些跡象顯示政府可能願意放
both non-performing loans and capital adequacy ratios. There have even been indications that the government may be willing to allow state-owned financial institutions to take part in merger and acquisition activity, a topic formerly considered highly sensitive. According to local media reports, a bill being drafted by the Executive Yuan would eliminate a requirement that financial institutions with at least 10% of their shares held by the government must report to the legislature on any M&A plans. Five of Taiwan’s largest financial holding companies (Hua Nan, First, Mega, Taiwan Financial, and Taiwan Cooperative) are majority government-owned. In addition to noting the apparently changed attitude toward consolidation, industry observers are awaiting a restructuring of the FSC to take place in mid-year. The terms of the incumbent nine commissioners (including the chairman and two vice chairmen) will come to an end, and the nature of the body will be transformed from the present collegial system in which decision-making is shared by all commissioners to one in which ultimate authority resides in the chairman. The likely impact of the revision on policy is unknown, but it should heighten efficiency and accountabil-
手。國內媒體報導，「金融機構合併法」修 正草案可望刪除「二次金改條款」，即公股 持股10%以上金融機構併購時，須向立院專案 報告。台灣前5大金控，即華南金、第一金、 兆豐金、台灣金控、合庫金控，政府持股仍 多。 業界除了注意到政府對整併的態度出現改 變，也期待金管會重組能順利於年中完成。 金管會現任9位委員，包括主委與2位副主 委，任期將於6月底屆滿；而新任委員就任 後，金管會將由合議制改為首長制，即主委 負擔最終決策權。改制對政策的影響尚不明 朗，但應可增加效率與釐清權責。臺灣大學 財務金融學系教授沈中華表示，「合議制的 問題在於，每個委員都權責都一樣大，如果 政策出了問題，到底該找誰負責？」，「新 制的權責與指揮將更為明確」。 此外，兩岸業務對金融業越來越重要，中
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Cover story ity. “Under the current system, if every commissioner has equal rights, then who should really be responsible for the final policy?” notes Shen Chung-hua, professor of finance at National Taiwan University. “Now the lines of responsibility and communications will be much clearer.” Further, at a time when cross-Strait business opportunities are of steadily increasing importance in the financial sector, the Central Bank has appeared optimistic about being able to reach agreement with its mainland counterparts within the next several months on the establishment in Taiwan of a renminbi (RMB) settlement mechanism. Speaking to journalists, Central Bank Governor Perng Fai-nan said this month that the negotiations have been going well, and that an agreement – which would give domestic banks the capability to conduct RMB-denominated business – could be concluded before the middle of the year. At present, local banks are allowed to engage in RMB-denominated business only through their Offshore Banking Units (OBUs). But in view of the large volume of cross-Strait trade and investment, as well as the desire to gain competitiveness vis-à-vis Hong Kong, the banks have been pressing the government to work out an arrangement to permit extension of the business to the domestic banking units.
The Taipei branch of China’s Bank of Communications is considered most likely to serve as the settlement bank. Besides the Bank of Communications, the Bank of China has also received permission to upgrade its local representative office to branch status, while the China Construction Bank and China Merchants Bank are currently operating rep offices here.
Consolidation stigma If M&A activity in the banking sector is now resumed, it is likely also to revive some of the controversy that surrounded previous rounds of consolidation during the Chen Shui-bian administration. Although the efforts to reduce the extent of Taiwan’s “overbanking” brought down the number of domestic banks in the market from 53 in the year 2000 to 37 at the end of last year – while also eliminating the most financially troubled players – the process left the public and policymakers with the sense that banking consolidation is a subject fraught with politically sensitivity. Fueling that impression were allegations that President Chen and members of his family were involved in influence-peddling as certain merger deals proceeded during his term of office. In addition, angry protest demonstra-
央銀行顯然樂觀看待兩岸貨幣清算機制，認為可望 於幾個月內敲定。央行總裁彭淮南日前於記者會中表 示，3月的談判進展順利，貨幣清算協議應可在年中 前定案，允許國內銀行經營人民幣業務。國內銀行目 前只能透過境外金融分行（OBU）執行人民幣業務。 但眼見兩岸貿易投資暢旺，又希望抗衡香港的中介角 色，國內銀行早就不斷表態，希望政府簽訂兩岸貨 幣清算協議，開放國內金融分行（DBU）的人民幣業 務。 中國交通銀行的台北分行可望承擔人民幣清算業 務。除交銀外的候選者還包括，已獲准將台北的辦事 處提升為分行的中國銀行，以及設有台北辦事處的中 國建設銀行與招商銀行。
金改陰影 如果銀行整併風潮再起，民進黨主政時期兩次金融 改革所引發的不法事端，很可能捲土重來。雖然金改 16
tions by employees of state-owned banks fearful of losing their privileges as civil servants received considerable media attention. And there was uneasiness among legislators and certain opinion leaders about the prospect of selling off national assets to private conglomerates, particularly when it would appear to be increasing the economic power of a handful of wealthy families. In interviews with Taiwan Business TOPICs that preceded Premier Chen’s remarks about fostering consolidation, some financial industry leaders spoke about the importance of having fewer, larger banks and how the process could be facilitated. “The financial services industry needs a lot of scale, and Taiwan doesn’t have it,” said Victor Kung, president of Fubon Financial Holding Co. “Within Taiwan, we are a very fragmented industry, so our banks are very small. Even the largest, the Bank of Taiwan, is ranked number 100 in the world. While all the other economies in East and Southeast Asia have consolidated their banking industry during the Asian financial crisis, Taiwan has never really developed a giant or a national champion. We do need such a national champion, but in my view it shouldn’t be a government-controlled bank, because as we know, the vitality of the Taiwan economy is in the private sector.”
使台灣的銀行總數由2000年的53家縮減至2011年底 的37家，同時誘導多數狀況不佳的銀行退出市場，但 決策與執行的弊端卻讓民眾與官員認定，銀行整併可 能引發政治風暴。 加添質疑聲浪的，還包括前總統陳水扁與其家族在 特定併購案中扮演的角色。此外，公營行庫員工擔心 公務員待遇不保，而其抗議示威也常引起媒體大幅報 導。立法委員與部分意見領袖也同感不安，擔憂出售 國有資產給民間財團的負面效應，特別是幾大商界家 族的經濟實力勢將因此大增。 在陳冲對整併表態之前，部分金融領袖仍向TOPICS 雜誌強調，台灣的銀行家數必須更少、但規模必須 更大，而且併購程序必須更為簡便。富邦金控總經 理龔天行表示，「金融服務業需要規模夠大，但台灣 市場太小」，「以國內狀況而言，金融版圖太過支離 破碎，每一家銀行的規模都很小；就算是最大的臺灣 銀行，全球排名也才剛進百名」。他說，「在亞洲金 融風暴期間，東亞與東南亞國家無不致力整併本國銀
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Kung went on to discuss what the private sector might be able to do to make it easier for the government to privatize the state-owned banks. “Right now the leading private-sector banks are all family-controlled, which makes it politically more difficult,” he noted. “If you sell to Fubon, you’re selling to the Tsais. If you sell to Chinatrust, you’re selling to the Koos. It’s tough.” He suggests that the key issue should not be the proportion of shareholding in the hands of the family members but whether they are calling the shots in the bank’s operations. That question could be answered by installing stronger corporate governance, including a majority of independent directors on the board and reliance on professional chief executives. To give the families some incentive to step back, he says, the government could give priority in privatization to M&A with groups that have sufficiently institutionalized and adopted strong corporate governance. Noting that the government-owned financial institutions account for over 50% of the local banking market in terms of lending and assets, Yuanta Financial Holding Chairman Yen Chingchang, who served as Finance Minister from 2000 to 2002, told TOPICS that “unless the government is willing to privatize the state-owned banks, there is
Major M&A Activity 003. Cathay United Bank, which comes under the Cathay Financial 2 Holding Co., was formed through the merger of the Cathay Commercial Bank and the United World Chinese Commercial Bank. 005. Taipei Fubon Bank, part of Fubon Financial Holding Co., was 2 created through the merger of Fubon Bank and the Taipei city government’s TaipeiBank. 006. The state-owned Farmers Bank of China was acquired by another 2 government institution, the Taiwan Cooperative Bank. 006. Standard Chartered became the first foreign bank to take over a 2 domestic one when it acquired the Hsinchu International Bank. 007. Citigroup completed the purchase of the Bank of Overseas Chi2 nese. 007-2008. Three foreign banks acquired the “good bank assets” 2 of distressed local banks through the resolution trust system: HSBC absorbed the Chinese Bank, ABN Amro the Taitung Business Bank, and DBS the Bowa Bank. ABN-Amro later acquired the Taiwan operation of the Royal Bank of Scotland, before itself being acquired by the Australian and New Zealand Banking Group (ANZ). 008. Standard Chartered further amalgamated with American Express 2 Bank and the good bank portions of the Asia Trust and Investment Corp.
行，但台灣從未培養出夠大的銀行」，「台灣需要龍 頭銀行，但我不認為此一大型銀行應該由政府主導， 因為大家都知道，台灣經濟的活力來自民間產業」。 富邦的龔天行指出，民營銀行必須進行調整，才 能協助政府推動公營行庫民營化。他說，「現在的 前幾大民營銀行全由家族掌握，整併的政治變數太 高」，「假如賣給富邦金，就等於賣給蔡家；賣給中 信金控，就是賣給辜家。難度太高了」。 富邦的龔天行認為，關鍵因素不該是家族成員的持 股比例，而應該看這些人是否真正介入銀行運作。化 解此一疑慮，銀行應該有更強的企業治理能力，包括 居多數的獨立董事，與可靠的專業經理人。他說，為 誘導家族退出第一線經營，政府可以在公營行庫民營 化過程中，優先開放體制完整與治理績優的金控集團 參與購併。 元大金控董事長顏慶章告訴TOPICS雜誌，由於公 營行庫不論放款或資產都占國內銀行總合的50%以 上，「除非政府願意放手，否則根本不會有真正的
銀行整併」。曾於2000年至2002年擔任財政部長的 顏慶章說，金融產業的另外兩大子產業，即保險與證 券，業者都是民營，「因此市場機制就可以主導整併 趨勢」。但對銀行業，市場機制仍嫌不足，因為政府 才是主導勢力。 回應富邦龔天行對企業治理的重視，元大的顏慶 章說，外界長期將「元大」與大股東「馬家」相提並 論，但是他7年前就任後，開始推動集團管理的專業 化，「現在的元大已被視為企業治理的標竿」。他強 調，「企業治理與家族事業是兩碼子事，因為馬家沒 有成員介入管理」。顏慶章很驕傲地展示元大提供給 獨立董事的辦公室，並指出獨立董事透過薪資委員會 能夠直接決定他本人的薪酬。 金管會主委陳裕璋在接受TOPICS訪問時表示，「我 支持國內金融機構持續透過併購增強體質、擴大經營 規模」。但他也直言，站在政府的立場，沒有必要強 迫誰和誰應該合併，而是應該提供清楚、透明的法規 制度。不過，陳裕璋不願多談公營行庫是否民營化的
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Cover story no room for meaningful banking consolidation.” In the two other major segments of the financial industry – insurance and securities – the companies are privately owned “and so the market mechanism can be the driving force for consolidation,” he said. But in banking, the market mechanism has been unable to operate as long as the government dominates the scene. Echoing Victor Kung’s remarks about the importance of corporate governance, Yen noted that Yuanta was previously considered synonymous with the Ma family (no relation to President Ma Ying-jeou), the major shareholders. But after taking on the chairmanship seven years ago, he worked on professionalizing the group’s management, and “today Yuanta Financial is widely viewed as a role model for corporate governance,” he said. “Corporate governance has nothing to do with whether the company is family owned or not. No member of the Ma family is involved in the management.” Yen proudly shows off the suite of offices Yuanta provides for its independent directors, and he notes that those directors determine his own compensation through the board’s remuneration committee. FSC Chairman Chen Yuh-chang, in an interview with Taiwan Business TOPICS [see the accompanying article in this
section], said he hopes that “the domestic banks can continue their M&A efforts so that their scale of operation can be expanded,” and that it is the role of the regulator to provide a clear and transparent environment for M&A to take place, without seeking to force consolidation. He declined to comment on whether state-owned banks should be privatized, describing that as the purview of the Ministry of Finance, which controls the government’s shares. With regard to private-sector initiatives, media speculation began soon after Premier Chen’s remarks to the legislature that consolidation should be welcomed. Fubon Financial and Yuanta Financial were both said to be interested in acquiring the 36% stake in Ta Chong Bank currently held by the large private equity firm, the Carlyle Group. Chinatrust Financial was also mentioned as being actively interested in expansion through acquisition.
Building a base Given the relatively small size of Taiwan’s domestic market and the fierce competition in the banking sector, many of the leading financial institutions see the necessity of looking beyond Taiwan’s borders to secure their future business. Chairman Susan Chang of the state-
問題，強調管理政府持股的財政部才是主管單位。 陳冲對金融整併正面表態後，媒體開始猜測民間業 者可能的動作。例如，富邦金與元大金據稱皆有意， 向凱雷投資集團購入36%的大眾銀行股份。中信金也 被提及正積極推動併購以擴張版圖。
立足台灣 台灣市場規模太小、內部競爭又激烈，許多主要金 融機構相信，必須向外發展才有未來。臺灣銀行董事 長張秀蓮最近指出，雖然臺銀的海外分行與OBU只占 總資產的10%，但卻創造了去年近半的營利。此一訊 息顯示，海外業務，特別是中國市場，將會越來越重 要。 國內與海外的發展很可能緊密相連。富邦的龔天行 表示，「我一直相信，如果銀行要具有國際影響力， 當然必須先在國內獲得一席之地」，而這也是富邦尋 求國內購併機會的原因之一。他說，幾乎所有主要跨 18
owned Bank of Taiwan recently pointed out that although her banks’ overseas branches and Offshore Banking Unit (OBU) represent only 10% of the institution’s assets, they last year accounted for roughly half of the overall profits. The implication was that overseas business – particularly in the mainland China market – will take on increasing importance. Growth domestically and overseas may certainly be linked. “I’ve always believed that if you want to be influential internationally, you have to be influential domestically,” says Victor Kung, explaining one of the motivations for Fubon to be a domestic consolidator. He notes that nearly all major banks in the world can rely on a strong base in a given home market. But if M&A opportunities in Taiwan are not available to enable domestic institutions to expand their scale, they still feel the need to move ahead to try to take advantage of market opportunities presented by the opening of China. Currently, seven Taiwan banks are operating branches on the mainland: Cathay United, Chang Hwa, Chinatrust, First Commercial, Hua Nan, Land Bank, and Taiwan Cooperative. Three others – the Bank of Taiwan, E. Sun, and Mega International – have received approval from the China Banking Regulatory Commission to set up branches, and Taiwan
國銀行都在母國具有堅實基礎。 然而，如果台灣市場的併購空間不足，國內銀行 仍然相信他們必須爭取中國開放市場所釋出的商機。 截至2011年底，6家國內銀行已經在中國開設分行， 包括國泰世華、彰化銀行、第一商銀、華南銀行、土 地銀行與合作金庫。另外2家，即玉山銀行與臺灣銀 行，已經獲得中國銀行業監督管理委員會同意開設分 行，而中國信託與兆豐國際商銀據稱也將跟進。台北 富邦銀行則透過香港間接投資廈門銀行。此外，部分 國內銀行據稱考慮投資對岸銀行，而一些金融機構已 經獲准辦理中國市場的租賃業務，以便利台商取得生 產設備。 富邦的龔天行呼籲，政府應該更積極協助國內銀行 取得在對岸的公平競爭條件。他說，「台灣對中國有 先天優勢」，除了語言文化，還有大量成功台商，因 此「如果金融服務業能獲得平等對待，銀行業在中國 市場也能和製造業一樣成功」。 富邦的龔天行指出，台灣不太願意主動要求中國
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Business Bank has received FSC approval but not yet China’s. Fubon has had access to the China market through its Hong Kong subsidiary’s stake in a bank in Xiamen. In addition, some Taiwanese banks are reportedly considering taking minority shares in Chinese counterparts, and several Taiwan financial institutions have been licensed to operate leasing companies in China, mainly to help finance purchases of production equipment by Taiwanese-invested enterprises (the so-called Taishang). F u b o n ’s K u n g u r g e s t h e Ta i w a n authorities to be more aggressive in seeking fairer competitive conditions in China for the Taiwanese banks. “Taiwan has its natural advantages visa-vis mainland China,” he says, noting the common language and culture, and the impressive success of many Taiwanese companies that have invested there. “If we have a level playing field in the financial services sector, we can also be as successful in China as we are on the manufacturing side.” Kung says the Taiwan side has been reluctant to push for more regulatory relaxation from China for fear that the PRC in return will ask for more concessions for their banks in Taiwan. “The government says ‘we want to protect you – we don’t want the Chinese banks to tromp on you in Taiwan,’” he explains.
The Bank of China's branch in Hong Kong currently provides the renminbi settlement function needed by Taiwan's financial institutions.
“But if we can gain access to a much larger and more fertile market, do it! We never said we’re afraid of their competition. We’re not afraid of Citi’s competition or Standard Chartered’s or HSBC’s. Would we be afraid of competition from ICBC?” National Taiwan University’s Shen Chung-hua agrees that Taiwan’s banks should have little to fear from the entry into this market of mainland banks. He
放寬限制，原因在於擔心對岸會要求台灣比照放 寬。但他認為，「政府老說『我們希望保護你們， 所以不希望中國銀行搶進台灣』，但如果國內銀行 能夠進軍更為廣大、更具潛力的市場，為什麼不 做？」，「國內銀行從沒怕過對岸業者的競爭；既 然我們不怕花旗、渣打、匯豐等外商銀行，我們為 什麼要擔心中國工商銀行？」 臺大的沈中華同意國內銀行不必太過擔憂對岸銀 行進軍台灣市場。他相信，對岸銀行的台灣分行， 主要角色將是財務評估具有中國業務的台灣企業， 並將潛在客戶轉介給母行。沈中華認為，「但國內 銀行的優勢在於，比中國銀行更瞭解台商」，「而 且台商也更信任本國銀行」。 臺大的沈中華分析，如果央行能夠順利敲定兩岸 貨幣清算機制，國內銀行的競爭力更將再進一步。 他說，「現有的清算方式是，台灣的銀行必須藉由 香港分行、子公司或合作伙伴，與香港的中國銀行 分行結算」，「如果以兩岸直航與香港中轉為例，
believes the main role of the Chinese branches here will be to assess the creditworthiness of Taiwanese enterprises with operations across the Strait so as to introduce potential borrowers to their branches in China. “But we have an advantage in that our banks in China know the Taiwanese businessmen better than they do,” he says. “And Taiwanese businessmen trust Taiwanese banks more than Chinese banks.”
新制將是『金融直航』，因為在台灣就可以結算人 民幣，不必再繞道香港」。目前，香港是中國內地 以外唯一合法的人民幣清算地點；不過，新加坡與 倫敦據稱也在爭取就地清算資格。
法規改革 除了鼓勵銀行整併與便利兩岸經貿，許多銀行 業者也呼籲政府改革法規，以增加台灣市場的銀行 競爭力。一個常被提及的例子是，法規應該更清楚 區分不同銷售對象，意即針對一般消費者的零售市 場，確實應該著重權益保障，但具備充分經驗、可 以自行判斷的機構與專業投資人，則應有不同規 範。美商道富銀行台北分行副總裁及總經理黃素貞 表示，按照現行法規，機構投資人可能不得購買低 於投資等級的商品，投資特定基金的金額也可能被 限制。身兼台北市美國商會資本市場委員會共同主 席的黃素貞認為，「上述案例真的管得太細」，「
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Standard Chartered is one of the foreign banks that has broadened its base in the Taiwan market by acquisition of domestic financial institutions. photo : standard chartered bank
Shen adds that if the Central Bank can succeed in negotiations to have China establish an RMB settlement mechanism in Taiwan, it would further bolster the competitiveness of domestic banks. “Currently to make settlement, our banks have to go through their Hong Kong branch or subsidiary or a correspondent bank to deal with the Bank of China in Hong Kong,” he says. “It’s like the previous issue of direct flights versus indirect flights. We can think of it as ‘financial direct flights.’ The settlement
could be done here, instead of in Hong Kong.” At present, Hong Kong is the only location outside of China proper for RMB clearance, although Singapore and London are reportedly interested in gaining that status.
Regulatory approaches Besides consolidation and the facilitation of cross-Strait business, many bankers also stress the need for regulatory reform to increase the competitive-
既然這是客戶自己決定的資產配置，他們當然知道 如何評估風險」。 富邦的龔天行表示，微觀管理的作風甚至介入金 融機構的內部組織架構。他認為，雖然雷曼兄弟倒 閉引發的金融風暴常被當成加強管制的藉口，但某 些領域根本與雷曼風波無關。 部份外資銀行與主管機關近來關係緊張，主因為 資料處理中心的地點，以及不得同時持有子行與分 行營業執照。第一個問題上，已經將資料處理中心 移往海外以節省成本的外銀，同意在4年內將消費 金融的資料處理移回台灣。部分銀行主張此舉將大 幅增加成本，而且不會提高資料保密程度，但未獲 主管機關採納。全球目前只有南韓與中國採行上述 制度，但南韓在美韓自由貿易協定通過後就必須修 法。 營業執照的問題，主要波及併購國內銀行、隨後 設立子行的部分外銀。他們現在被迫放棄原有的分 行營業執照，但先前的規定允許銀行同時持有分行 20
ness of banks operating in this market. One frequently cited example is the need for greater differentiation between rulings applicable only to the retail market – where consumer protection is a central principle – and those also applied to institutional or professional investors, who should be sophisticated enough to make their own judgments. Jane Hwang, vice president and general manager of the State Street Bank and Trust Co. Taipei branch, notes that under current regulations, institutional investors may be barred from buying less than investment-grade instruments or may face a cap on the amount of investment they can put into a given fund. “That’s too micro,” says Hwang, who is also co-chair of AmCham Taipei’s Capital Markets Committee. “It’s your asset allocation decision and you should know how to assess your own risk.” F u b o n ’s K u n g s a y s s u c h m i c r o management extends even to the internal organizational structures financial institutions are permitted to adopt, and feels that the aftermath of the Lehman Brothers collapse of a few years ago was used as an excuse to tighten up on regulations in areas generally unrelated to that case. Some of the foreign banks in Taiwan have recently had tense dealings with the regulators over such issues as data processing and dual licensing. Under
與子行執照。台灣法律限制銀行對單一客戶的放款 額不得超過其淨資產的5%，因此分行執照代表放 款空間較大，因為其淨資產是以企業總體為計算基 準。反對修改規定的人士認為，國際慣例就是允許 雙執照，而台灣3家在美國的銀行也持有雙執照。 除了特定缺點，台灣的銀行業似乎仍有潛力扮演 更重要的區域性角色。渣打國際商業銀行總經理及 行政總裁康暉杰說，「台灣的確具有國際金融中心 所需的所有特質」。之前曾在新加坡任職6年的康 暉杰說，「有3項特質是我認為必要的，一是完善法 制，二是良好的銀行體系與監管機制，三是人才。 三者齊備，當然可以期待在金融產業闖出更廣闊的 一片天」。他認為，如果能談成兩岸貨幣清算機 制，台灣的條件將更好。 關於人才，渣打的康暉杰強調不能單靠國內培 養。國際級的金融機構當然需要技術專精、瞭解全 球的員工，然而如果不引進國外人才，人力供給不 見得能夠滿足需求。在許多面向上，包括居住與教
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pressure, banks that had moved their data centers offshore in line with global trends toward centralization have now agreed to return that function to Taiwan for their consumer banking within four years. Some institutions argued in vain that the move would impose an extremely heavy cost burden on them, while the benefit in terms of added data protection would be non-existent. Currently only two other countries – South Korea and China – have such requirements for onshore data centers, and Seoul will need to change its policy under the conditions of the Free Trade Agreement it recently entered into with the United States. The licensing issue would affect certain foreign banks that established subsidiaries in Taiwan in recent years after expanding in this market by acquiring domestic banks. They are now being pressed to give up their original branch license, which previously could be held simultaneously with the subsidiary license. Because Taiwan regulations limit bank loans to a single borrower to 5% of a bank’s net worth, having a branch license permits much larger loans to be made, as the net worth is treated as that of the parent institution. Critics of the proposed change note that dual licensing is a common practice internationally, and that three Taiwanese banks in the United States fall in that category.
Despite certain shortcomings, the Taiwan banking industry is seen as having the potential to play a more important role within the region. “Taiwan really has all the trappings it takes to be an international financial center,” says Ajay Kanwal, who recently assumed the post of president and CEO of Standard Chartered Bank Taiwan after a six-year assignment in Singapore. “We have the three things that I think are crucial ingredients: a) good law, b) a good banking system and regulatory system, and c) talent. With those three basic elements, you could have the ambition to do things on a much broader scale in the financial industry.” He adds that providing an RMB settlement mechanism would further add to Taiwan’s qualifications. For the talent component of the mix, Kanwal stresses that it is not enough to rely on the local pool of human capital. International-class banking institutions also need people with specialized skills and knowledge of world markets – talent that will not be available in sufficient supply unless brought in from abroad. In most respects, including the quality of housing and schooling, as well as the safe and friendly nature of the society, he sees Taiwan as a highly attractive location. “As a place to stay for global talent, I would give it high marks,” he says. “But I don’t think a lot of people outside
Taiwan realize how good living conditions are here. We certainly have to do more to market it as a location.” The major drawback he cites is the high level of taxation on personal income, which could deter many executives and specialists from accepting job offers in Taiwan. “Because we’re competing with Singapore and Hong Kong, personal income tax rates are certainly something we should think about as a crucial factor when people consider whether to come here,” he says. Kanwal says he believes the vision for Taiwan’s banking future is gradually evolving, after being held back by the “missing link” of pinning down the cross-Strait financial relationship. Now with the implementation of the Economic Cooperation Framework Agreement (ECFA) and the opening of opportunities for cross-Strait operations by Taiwanese and Chinese financial institutions, the time may be coming for Taiwan to re-evaluate its potential in the AsiaPacific financial sector, and decide on its level of ambition. “Do we want to establish ourselves as a hub, and if so, how big of a hub?” asks Kanwal. “Would it be a Greater China hub, which we certainly can be very easily, or something bigger – for which the possibility also does exist?”
育的品質，以及安全與友善的社會天性，他認為台灣 是吸引力很高的地點。他說，「就國際人才是否願意 長駐這點，我會給台灣高分」，「但我認為只有少數 外國人瞭解台灣的優良生活環境，我們真的該多加把 勁宣傳」。 渣打的康暉杰認為，台灣的主要缺點是個人綜合 所得稅稅率太高，可能會嚇跑許多高階主管與專業人 才。他說，「台灣的對手是新加坡與香港，大家在決 定要到台灣之前，當然會認真比較個人所得稅率」。 渣打的康暉杰說他相信台灣銀行業的前景正在逐漸 開展，因為緩步不前的兩岸經貿關係終於撥雲見日。 隨著兩岸經濟合作架構協議（ECFA）的落實，以及兩 岸金融機構跨境營運的商機浮現，台灣也許應該重新 評估自己在亞太金融產業的發展潛能，並決定自己想 要達到何種定位。誠如康暉杰所說，「台灣是不是真 想成為區域中心？如果答案是肯定的，那就要問自己 想成為哪種層級的樞紐，是難度低的大中華區樞紐， 還是有機會、但難度更高的目標？」
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“THe FINANCIAl STATuS IS QuITe SOuND” Of the six chairmen that have led the Financial Supervisory Commission since its establishment in mid-2004, the incumbent, Chen Yuhchang, is the longest-serving, having been in office for nearly two years. An MBA from National Taiwan University, Chen was previously chairman of First Financial Holding and First Commercial Bank (2008-2010) and chairman of the Taipei Smart Card Corp. (2006-2008). He also served for eight years as secretary-general of the Taipei City Government and in 2006 was appointed Deputy Mayor. He was interviewed for TOPICS by Editor-in-chief Don Shapiro. Interview with FSC Chairman Chen Yuh-chang
H o w d o y o u e n v i s i o n Ta i w a n’ s financial sector evolving over the coming decade? What government measures will be needed to facilitate that development? We are very confident about the development of the financial sector for two reasons. First, thanks to the efforts of both the government and the private sector in recent years, the sector's financial status has became quite good, last year posting total profits of NT$200 billion [about US$6.7 billion] – the highest amount in years. Second, the asset quality is rather good, with the nonperforming loan (NPL) rate as low as 0.42%. Furthermore, the banks’ debt coverage ratio is 260%, while the coverage of credit assets is 103%. So the financial status is quite sound, providing a firm basis for future development. Besides a good financial status and good business operations, for that further development the banks also need to have a law-abiding mindset, proper internal control mechanisms, and good corporate governance. The second foundation for development is better cross-Strait trade relations, now that ECFA and the subsequent financial MOUs have opened a new door. The
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previous barriers to cross-Strait trade and financial cooperation have been gradually removed. This is a good opportunity for Taiwanese banks because they can be headquartered in Taiwan while reaching out to a new market in mainland China. For these two reasons, we are optimistic about the future development. During his re-election campaign, President Ma announced his “Golden Decade” platform in which development of the financial sector was particularly highlighted. It showed that the government takes the financial sector seriously and is willing to help. One focus of the platform is to develop financial services “with cross-Strait characteristics,” and a second is to fully utilize our domestic talent to develop asset-management operations. Meanwhile, the industry is also looking for further liberalization. The FSC has been working on it, especially regulations governing cross-Strait dealings, which had been quite stringent in the past. The FSC, the Mainland Affairs Council, and the Central Bank have set up an inter-agency working group to discuss and review all related issues. With such a liberalization initiative from the government side, I think we can expect a brighter future for the sector.
Has the government set any specific targets? As for now, we are working on liberalizing the regulations and no further goals have been set. After the liberalization is accomplished, maybe we can meet with representatives from the industry to establish concrete quantitative goals. What about the liberalization of RMB business in Taiwan? The key element in this issue is negotiating a cross-Strait clearance and settlement agreement. For now, the government can only allow OBU operations. Currently, the domestic banks can provide RMB-related services through their OBUs, but we hope to assist the banks to further expand their business, such as by allowing them to issue RMB securities. Another area is wealth management, in which we hope to further liberalize restrictions to allow Taiwanese to buy more kinds of RMB financial products through the OBUs. For the domestic market, RMB services can be realized only after the agreement is signed and the clearance and settlement mechanism is implemented. The Central Bank is working on the preparation. When all elements are in place, RMB
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will be treated like any other foreign currency, which means Taiwan citizens can buy RMB as needed, and the financial institutions can sell RMB financial products to the general public. Does Taiwan still aim to be an AsiaPacific financial center? That is always on our radar. We always hope that domestic financial players can increase their assets, size, services, and operations. If all these elements are realized, Taiwan would surely take an important role in the Asia-Pacific region. We do not proclaim that goal loudly, but we are indeed working toward it. To be a funding center, we have to develop our own unique niche, part of which is ECFA. We have placed extra attention on cross-Strait trade and financial cooperation, because the trade volume is quite high and Taiwan enjoys a substantial trade surplus with mainland China. With such a large surplus, if the Taishang [Taiwanese enterprises in China] can achieve higher performance in RMB investment and enjoy easier access to RMB services, they would certainly be more willing to accommodate more RMB products in their portfolio. A higher level of RMB holdings means that more financial products can be introduced to the corporate clients, and more products being made available makes it more likely that Taiwan can be a regional funding center. Meanwhile, we are still promoting the TDR [Taiwan Depository Receipts] initiative to encourage more foreign companies to list on Taiwan's stock exchange. To enhance the future for TDRs, we will focus on fine-tuning the regulations in certain aspects, such as qualification review, the introduction of new products and services, and risk disclosure. Critics have said that Taiwan should have fewer but larger banks to be competitive. Do you agree and if so, how can consolidation best be carried out? Basically, we hope that successful M&A activity can take place. But as to the definition of over-banking, it depends which side are you on. Indeed, there are many
banking outlets in Taiwan, but do we have banks that are large enough? The domestic banks are indeed of relatively small size. At the same time, the financial crisis that started in 2008 and the recent debt crisis in Europe provide counter-evidence about the problem with banks that are too big to fail. So the answer is “it depends.” Of course, we would like to have some large banks because they are less vulnerable to risk. Therefore, on the M&A issue, I hope the domestic banks can continue their M&A efforts so that their scale of operation can be expanded. Surely, M&A is worthwhile if it can help banks create synergies, strengthen their foundation, and lower their costs. As for how to encourage M&A, I don’t think the government should take an overzealous role to the degree to coercing who should merge with whom. It is better to leave the decision to the financial players. The government's role is to ensure that all stockholders' rights are protected and the process is fair. In addition, the government should provide clear and transparent regulations so that all players can follow the rules. Currently, the laws are clear and transparent enough, and the government has streamlined the administrative process to facilitate M&A activity. The success of the Capital Group-Taiwan International Securities and Yuanta Financial HoldingsPolaris Securities cases prove that the mechanism works. Will the government allow stateown banks to be included in the M&A process? That is the responsibility of the Ministry of Finance. The FSC's duty is to protect stockholders' rights. In the life insurance industry, a number of foreign companies have exited the market in the past few years, and some of the local players have faced financial problems. How do you see this sector being strengthened going forward? Indeed, some players left the market, but some newcomers have decided to enter, such as Zurich Insurance, Cardif Assurance Vie [the insurance arm of BNP
Paribas], and Cigna. AXA Insurance is also considering returning to the Taiwan market. Of course, the insurance companies have their own considerations. For example, AIG sold its assets to pay its debts, not because they were worrying about the health of the Taiwan market. For the European companies, the consideration is the new accounting and supervisory requirements. Generally, the domestic insurance industry is on track, and the government is willing to assist its development, for example with the new foreign exchange valuation reserve mechanism that was implemented March 1. The cap on overseas investment for foreign insurance polices has also been raised, so operational flexibility has been on the increase. What about the financially troubled domestic players? We are always watchful about their operational and financial status. We placed some restriction on their operations and required them to increase available capital. They are now getting back on track, and because those companies are small in size, they wouldn’t have much effect on the market as a whole. With increasing cross-Strait economic integration, what are the challenges and opportunities for Taiwan’s financial institutions? The question of cross-Strait investment involves not only banking, but also insurance and securities. China has permitted six Taiwanese securities companies to enter its stock market as RQFII [RMB qualified foreign institutional investors], and five of the six have been granted investment quotas, which means they can truly buy and sell in the market. The Chinese government is trying to introduce more financial products to the market and more innovations in financial services, which presents a good business opportunity for Taiwanese companies. As to the risks, they are under effective control, such as the cap on total exposure. The FSC continues to carefully supervise all related activities.
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TAIWAN busINess
Textiles Still Going Strong Once written off as a “sunset industry,” the sector has relied on innovation, technology, and a secure supply of raw materials to stay competitive.
BY TIMOTHY FERRY
P
eter Huang, the 70-year-old founder of Taiwanese textile firm Kingwhale Industries Ltd., recounts a pivotal event in his career as a textile entrepreneur. In 2006, Kingwhale had agreed to act as a contract manufacturer for Malden Mills, the Massachusetts maker of innovative Polartec fleece. Malden Mills’ plant had burned down in 1995 and the company had faced production and financial issues ever since. But within a year, the CEO of the company that took over Malden Mills, now called Polartec Ltd., terminated the contract. Huang recalls that when he asked the new CEO why he was ending
a contract that seemed to be working for both parties, he was told: “Peter, you are almost there – I can’t teach you anything more.” But Huang, who prides himself on his innovative R&D, responded: “You didn’t teach us anything. We learned all this by ourselves, through our own R&D.” And to emphasize the point, he went on to develop his own fleece-like fabrics that he now sells to major labels such as Eddie Bauer, LL Bean, and Adidas, as well as to his own garment factories abroad. Huang’s textile mills, located in Vietnam and Jordan as well as Taiwan, employ nearly 4,000 people and produce 12 million square meters
TOP EXPORT INDUSTRIES OF 2011 $12.7
Unit: US$ billion
$19.3
Electronics Precision instruments $83.9
$19.8
Chemicals Machinery Information and communication
$20.5
Iron and steel Textiles $22.5 $23.9
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SOURCE: Department of Statistics, Ministry of Finance
of fabric annually. “We are quite successful with our own technology,” he says. “We hate that people imagine that we are copying anyone.” With his focus on innovative fabrics and efficient manufacturing processes, Huang’s success mirrors Taiwan’s overall textile industry. Garment mills that assemble fabrics into clothing migrated away from Taiwan in the 1980s to places with cheaper sources of labor such as Thailand, the Philippines, and increasingly China. But what evolved in its place are clusters of often smaller, family-owned mills specializing in functional fabrics (such as water resistant and flame retardant products) made from polyesters and nylon. These clusters of SMEs, many of them located in Taoyuan and Yunlin Counties, allow factories the flexibility to either take on smaller orders by themselves or to cooperate on larger, more complex orders requiring a high degree of skill and customization. Companies in those clusters have a strong tradition of collaboration that enables them to work together with the efficiency of a single unit. “Mass production will never return to Taiwan,” says Justin Huang, chairman of the Taiwan Textile Federation (TTF), a nonprofit research and
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consultancy organization. But he says the market for smaller, more lucrative orders of functional fabrics is growing fast. Many of the world’s top makers of sports and outdoor wear, including Nike, Adidas, and Northface, now source their increasingly sophisticated fabrics from Taiwan. Taiwan is among the world’s top producers of anti-fungal, anti-UV, and even electromagnetic shielding fabrics, for example. “Everywhere in the world you see people wearing sportswear with labels that say ‘Breathable,’ ‘Quick Dry,’ and ‘Anti-fungal’ properties,” notes Huang. “These were innovated in Taiwan.” Yet the industry – once Taiwan’s numberone manufacturing and exporting sector – now labors in relative obscurity compared with its glitzier high-tech cousins. Caught up on images of underpaid workers toiling in sweatshop conditions in China or Thailand, many people express surprise that Taiwan still has a textile industry. In fact, Taiwan’s textile industry remains strong and viable. While all of Taiwan’s export sectors experienced steep declines in 2009, the textile industry rebounded with double digit growth in 2010 and 2011 (13% and 15% respectively), for a total of NT$482.3 billion (US$16 billion) in production value in 2010 and NT$554.64 billion (US$16.6 billion) in 2011, according to the Industrial Development Bureau (IDB). While this is a far cry from the high of over NT$680 billion in 1997, the IDB anticipates strong future growth. Its website forecasts production value in 2015 reaching NT$580 billion. And as 98% of Taiwan’s production is destined for export, textiles are one of the country's largest generators of foreign exchange. Leveraging the island’s strong petrochemicals industry (the source for nylon and polyester filaments) and a deep pool of technical expertise, the textile industry is now highly automated and efficient. Computers handle the most complex jobs in most mills, reducing labor costs and mitigating the need to move manufacturing to cheaper areas. And with the support of government initiatives, the industry has taken
on the reduction of energy intensity and carbon emissions as important goals. Still, the industry’s obscurity points to its fundamental weakness. Taiwan has achieved great success following the OEM/ODM model of contract manufacturing for big international brands, but this business model forces Taiwan’s mills to earn substantially lower margins than branded goods. Robert Jou, director of the business and planning department at the public-private Taiwan Textile Research Institute, says that the 20% gross margins in the weaving industry become 3-5% returns after taxes, but if “you have a brand, you can earn five or 10 times more.” He notes that “the players in the World Cup wore jerseys made from Taiwanese fabrics, but no one knew it.” In addition, many industry sources believe that for Taiwan to maintain its competitive edge, it will need to make significant investments in R&D. China, for one, is quite adept at copying innovative products from Taiwan, so that Taiwanese goods must always remain one step ahead. But with smaller revenue streams, Taiwan’s SMEs often can’t come up with big budgets for investment in R&D. Whether Taiwan will be able to maintain its competitive
edge in technology and develop valuable brands remain open questions.
Industry history Although some textile mills were transplanted to Taiwan from the mainland in the late 1940s when the KMT government retreated to the island, Taiwan’s nascent textile industry got a big boost in the 1960s from substantial Japanese investment. In an early example of offshoring, the rising yen forced Japanese garment makers to look for cheaper labor, and they turned to Taiwan. What followed was a largescale transfer of Japan’s textile industry – including its technology – to Taiwan. Just as significantly, Taiwan’s push into petrochemicals in the 1970s provided the industry with a ready source of raw materials to make synthetic fibers. Taiwan lacks natural resources, so it has almost no cotton, wool, or linen production. Polyester, nylon, and other synthetic fabrics now comprise over 90% of Taiwan’s textile exports. But even Japanese technology and cheap raw materials couldn’t save the garment industry in Taiwan from the rising New Taiwan dollar. The value of Taiwan’s currency rose from over 40 to
The Taiwan Textile Federation's teams of textile and fashion designers transform functional fabrics into fashionable garments. Photos: TTF
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The Taiwan textile industry is now heavily automated, making for efficient and cost-competitive operations. Photos: kingwhale
1 against the U.S. dollar in 1985 to less than 30 to 1 by 1987. Another round of offshoring occurred, with garment makers largely abandoning the island for cheaper environs in Thailand, the Philippines, and China. Kingwhale’s Peter Huang notes that as “there’s no way to automate the process” of garment manufacturing, labor cost is the key factor in maintaining profitability. Rather than destroying Taiwan’s textile industry, however, the exit of the garment plants actually stimulated growth in fabric making. The lower costs offshore allowed the plants to expand production many times over, creating more demand for fabric. Taiwan’s spinners, weavers, and knitters ramped up production, and the industry’s strengths in computer technology allowed it to automate increasing aspects of the manufacturing process, resulting in dramatically heightened output. TTF’s Justin Huang notes that a mill making fabric from chemical fibers can produce many times the output of a similarly sized garment factory. Kingwhale’s garment-making facilities in Vietnam and Jordan together employ over 3,000 workers, but can consume only 30% of the fabric produced in their Taiwanese plants employing just 500 workers. Peter Huang estimates Kingwhale would need at least 10,000 workers in his garment facto28
ries to utilize all the fabric output of his Taiwanese plants. Like most of Taiwan’s textile manufacturers, he depends mainly on supplying other garment makers with fabrics. A c c o r d i n g t o t h e T T F, t h e t e x tiles industry’s export earnings last year came to US$12.7 billion, up from 2010’s US$11.3 billion. Of the total exports, 60% were finished fabrics (dyed and/or printed and ready to be cut into garments), 19% were polyester yarns and filaments, and 11% fibers, with the remaining 10% comprised of finished garments and accessories. As much of Taiwan’s textile exports go to China, the Economic Cooperation Framework Agreement (ECFA) reducing or eliminating cross-Strait tariffs between China and Taiwan on many items has benefited the industry. Sales to China increased by over 10% last year and are set to see further increases in 2012 when more items receive tariff-free status. The textile industry’s drive towards greater efficiencies complements an important current emphasis of Taiwan’s policymakers: the adoption of green technology. The Ma Ying-jeou administration has made reducing energy consumption and carbon emissions key policy initiatives. K i n g w h a l e ’s L o w I m p a c t Te c h nology (LIT) dyeing process reflects
that policy thrust. Peter Huang says the process allows his firm to reduce the heat required for dyeing fabrics from 130 degrees to 110 degrees centigrade. As dyeing uses substantial amounts of energy and water, he says this is a significant step towards reducing the environmental impact of the textile industry. TTRI recently certified that Kingwhale has reduced carbon emissions by half in its dyeing mill. The SME character of the industry, with many small mills located together in industrial clusters, also adds to the industry’s resilience, allowing the industry to weather economic storms better than companies facing the boomor-bust cycles of high tech. Although textiles can’t match the high returns that high tech can offer during boom cycles, says Robert Jou of TTRI, during economic downturns these small factories “can still take smaller orders and they can survive.” And compared with high-tech industries such as solar cells and DRAMs, which remain in the doldrums due largely to global gluts in production, Taiwan’s textile industry profit forecasts look rosy. Profit margins, traditionally low in textiles, now actually exceed those in many areas of high tech, says TTF’s Justin Huang. In another contrast, Taiwan’s solar cell and DRAM makers continue to
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suffer from a global glut, with low prices forcing bankruptcies and raising concerns about unemployment, while Taiwan’s spinning, knitting, weaving, and dyeing mills can’t find enough workers. Some 30,000 foreign laborers, mostly from Thailand and Indonesia, are needed to staff the island’s mills, complementing the 150,000 local workers.
Rising costs But maintaining growth in the industry is hardly guaranteed, and the industry faces significant challenges. Rising crude oil prices threaten not only the cost of energy for this energy-intensive industry but also its petrochemical raw materials. A fragile global economy could also reduce demand, particularly in the major markets of the United States and Europe. Also, the recently implemented KORUS free trade agreement between South Korea and the United States may pose a threat to Taiwan’s textiles exports. IDB officials have told the local media that they anticipate that 5% of Taiwan’s textile exports to the United States, currently valued at US$1.2 billion, could be replaced by Korean products due to KORUS. The officials were quoted as saying that accelerating ECFA talks to gain better trade terms and more tariff reductions with China is the key to making up these losses. TTRI’s Jou sees two main ways for Taiwan to maintain its competitive edge: increased focus on R&D and moving the industry further downstream towards branding to raise margins. The research institute is expected to play a
key role in preserving this competitiveness. Founded over 50 years ago as a quality control testing center for U.S.bound goods, it has now expanded its mandate to incorporate R&D. It regularly makes its laboratory facilities and scientists available to collaborate with private enterprises on research projects. Jou cites such exciting innovations developed at the institute as adding tiny amounts of powdered jade into the polyester fibers to produce “Cool Touch” materials and even odor-eating fabrics incorporating used coffee grinds. The Taiwan Textile Federation is another key player in the drive to maintain the industry’s competitiveness. This private-sector association helps the industry improve its competence by promoting enhanced design, collecting and analyzing data, organizing trade shows, and providing business consulting. With 30 years of experience and over 200 textile and fashion designers on staff to help industry showcase its products, the TTF earned over NT$500 million in fees last year to supports its operations. But while Taiwan remains strong in the midstream of the textiles industry, it has yet to build global consumer brands. “How are you going to compete with Adidas or Nike?” asks TTRI’s Jou, alluding to those companies’ huge marketing budgets and high brand value. Industry insiders agree that Taiwan’s economy is just too small to provide an effective platform for global reach. Although several Taiwanese consumer brands such as Les Enfants children’s wear, Jorya women’s wear, and Tony Wear for men have enjoyed success on the mainland, there is widespread doubt that Taiwan brands can gain global rec-
Aicare Worldwide developed innovative products such micro-fiber elastic shoulder wraps and knee bandages.
ognition anytime soon. B2B branding efforts are doing better, though. Government initiatives such as the MIT (Made in Taiwan) campaign to differentiate Taiwanese and Chinese-made fabrics seem to be working, particularly for quality-conscious outerwear and sports apparel brands. Such B2B brands as Kingwhale have a strong presence in the industry, but they still inhabit the midstream, removed from public consciousness and consumer-brand margins. U l t i m a t e l y, s t a y i n g o n t o p o f industry trends is never easy, and sometimes even the best ideas just don’t catch on. Ask Jason Chou, founder and president of healthcare fabrics maker Aicare Worldwide. For over a decade, the company manufactured medical “full-range garments” such as supportive bandages designed to help people recover from injury. Yet despite obtaining patents in the United States, Germany, and other countries for innovative products such as microfiber Velcro-like closure systems, the company found little success. “We spent a lot of money developing our products,” Chou says. “We have very good products, but the market doesn’t like them.” He says that a big U.S. brand initially invested in his micro-fiber elastic bandages, but terminated the deal when market research indicated the microfiber products wouldn't create a new segment but just attract the same consumers as would ordinarily buy the more conventional elastic bandages. Yet Chou didn’t give up, expanding into other segments of the textile market. Recently, the company won substantial orders as a contract maker of waterproof zippers for high profile brands such as Vaude and Maier of Germany and Salomon of the United States. Such tenacity and flexibility have characterized the textile industry in Taiwan throughout its history. With a core of determined entrepreneurs and support from public and private institutes, it looks set to continue as a strong component of Taiwan’s manufacturing sector.
Photos: AICARE
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Why Taiwan’s Democracy Matters The creation of an open political system is a rare achievement that deserves international encouragement and support. This is the second in a series of articles on Taiwan’s importance.
PEACEFUL TRANSITION — Chen Shui-bian and Annette Lu celebrate their election as president and vicepresident in Taiwan's first transfer of political power in 2000. photo : cna
BY J. BRUCE JACOBS
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emocracy is vitally important to the United States and its allies such as Australia, Canada, Great Britain, France, Germany, and other European nations. It allows us to discuss politics without fear of imprisonment, and to choose our own leaders and toss out those who prove unsatisfactory. Democracy also protects our civil and human rights, allows minorities to express unconventional opinions, and seeks to assure that everyone is equal before the law. In practice, democracies vary considerably. Some use presidential systems, others parliamentary systems, and a few – like France and Taiwan – employ a combination of both. Some are quite centralized, while others opt for one form or another of federal system. All democracies have flaws, but no one has invented a better system. Because they have feedback loops from the people back to the leaders, democracies tend to be more stable and successful than authoritarian systems over the long run. They also tend to be more committed to maintaining peaceful relations with other countries and contribute to international cooperation. Democracy is precious and relatively rare. Asia has only four consolidated democracies, and Taiwan is one of 30
them; the others are India, Japan, and South Korea. Such countries as Indonesia, the Philippines, Sri Lanka, and Thailand have taken preliminary steps towards democracy, but in these countries the still potent militaries have frequently seized power, while the democratic sprouts have yet to develop strong roots and branches. Mongolia has also taken some steps towards democratization, but it too has yet to consolidate its democracy. Thus, the promise offered two decades ago by Harvard and Columbia political scientist Samuel Huntington of a “Third Wave of Democracy” remains largely unfulfilled in Asia. Very late in his presidency, Chiang Ching-kuo sought to liberalize the political system, partly because he had reformist instincts and realized that Taiwan could not continue as it had in the past. In addition, the United States was putting pressure on the Taiwan government, just as it pressured the military government in South Korea, to liberalize and to release political prisoners. Chiang Ching-kuo finally abolished martial law in July 1987, almost 40 years after it had been instituted in Taiwan by his father, Chiang Kai-shek. Taiwan began to democratize in earnest in the late 1980s after Chiang
Chiang-kuo died and was succeeded by Vice President Lee Teng-hui. The conservative elements strove to make Lee a figurehead president, and they initially sought to deny him the chairmanship of the ruling party, the Kuomintang (KMT). Lee worked hard with the more liberal elements in the KMT and with the then very young Democratic Progressive Party (DPP) to defeat the old Mainlander establishment that had controlled Taiwan under Chiang Kaishek and his son, Chiang Ching-kuo. In one major 1991 decision, the Council of Grand Justices, Taiwan’s Constitutional Court, ended the control of the “old thieves,” the aged representatives chosen on the Mainland in the 1940s, over Taiwan’s three parliamentary bodies – the Legislature Yuan, Control Yuan, and National Assembly. With the departure of the “old thieves,” the Legislative Yuan amended Article 100 of the Criminal Law so that charges of insurrection could no longer be brought against anyone for simply peacefully advocating an idea such as Taiwan independence. In addition, the Lee Teng-hui government moved to democratize Taiwan’s political system through a series of constitutional amendments. Thus, in 1994, the positions of governor of Taiwan Province
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and mayors of Taipei and Kaohsiung – formerly appointed posts – were converted into elective offices. Under President Lee Teng-hui, the government also implemented freedom of the press and assembly as well as the right to establish civic organizations, including political parties. In 1996, Taiwan also chose its president through popular election for the first time. Since then, Taiwan has undergone two peaceful transfers of power – in 2000 from the KMT to the DPP after 55 years of KMT rule and in 2008 back to the KMT again. All of these changes have occurred quite smoothly and with virtually no violence. Taiwan is sometimes erroneously referred to a “tiny island.” In fact, it ranks as a middle power with a population in the top quarter of the world’s nations and a land area greater than two-fifths of those countries. It has a major, developed economy and a high standard of living. To provide some comparative perspective, Taiwan has a population slightly larger than that of Australia.
External threat The only threat facing the democracy of this middle power, Taiwan, is a great power, China, which claims Taiwan as its own territory. In its White Papers of 1993 and 2000, China stated that “Taiwan has belonged to China since ancient times” [original emphasis] and that Taiwan is “an inalienable part of China.” Anyone having an in-depth familiarity with Taiwan’s history knows that these assertions are patently false. An early Chinese text written around 1350 does refer to Taiwan, but it mentions no Han Chinese there and alludes to the island as where “foreign countries start.” A late Ming Dynasty military expert, Chen Di, visited Taiwan in 1603 as part of an attempt to drive out Japanese pirates, but he describes only aborigines as resident there. When the Dutch came to Taiwan in 1623-24 and established their colony near present-day Tainan, they found no permanent Chinese communities on the island. Chinese visitors came only tem-
porarily to trade with the aborigines, to fish, and to engage in piracy. When the Spanish arrived in northern Taiwan two years later, they found no Chinese at all. In fact, it was the Dutch who brought Chinese migrants to Taiwan to engage in agricultural and other pursuits. When Zheng Cheng-gong (Koxinga) came to Taiwan and expelled the Dutch in 1662, he had already lost his war against the Manchus, who had established their Qing Dynasty in Beijing 18 years earlier. Zheng died within a few months of his arrival, and in 1683 his son threw in his lot with an antiManchu rebellion in China. When the revolt was defeated, Taiwan fell to the Manchus. That year, the great Manchu Kangxi emperor declared that Taiwan had never belonged to either the Chinese or the Manchus, saying “Taiwan is a small pellet of land. There is nothing to be gained by taking it, and no losses in not taking it.” His son, the Yongzheng emperor, said in 1723: “From ancient times, Taiwan has not been part of China. My holy and invincible father brought it into the territory.” From 1683 to 1895, the Manchus controlled the coastal regions of Taiwan, yet they did not claim the “uncivilized” parts of Taiwan where aborigines lived. Thus, the Manchu government refused responsibility for protecting foreign seamen whose
ships ran aground in aboriginal areas. After an American vessel was wrecked off Pingtung in 1867, the U.S. consul in Xiamen, General Charles William LeGendre, signed a treaty with the aboriginal Chief Tauketok rather than with the Manchu government. Following the Sino-Japanese War of 1894-1895 (which should really be called the Manchu-Japanese War), the Qing court ceded Taiwan to Japan and the Japanese began a 50-year colonial regime that attempted to convince the Taiwanese that they were Japanese, though their daily treatment made very clear that they were only second-class Japanese. After World War II, the Allies allowed Chiang Kai-shek to occupy Taiwan, and Chiang implemented a new colonial regime that resembled that of the Japanese in many ways, though it lacked the latter’s efficiency. The Taiwanese were again the subjects of systematic discrimination. Even though they accounted for more than 85% of the population, they held virtually no significant political positions. Chiang Kai-shek’s claim that Taiwan was Chinese territory was historically incorrect. In fact, neither the KMT nor the Chinese Communist Party had ever claimed Taiwan as Chinese until 1942. In his famous interview with Edgar Snow in 1936, Mao Zedong said Taiwan should be independent.
NO CHIANG DYNASTY — In a 1986 interview with Sandra Burton and Don Shapiro of Time magazine, President Chiang Ching-kuo made news by saying his successor would be chosen by Constitutional procedures and would not be a member of the Chiang family.
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a n a ly s i s “Taiwan problem,” but that is a China’s claim to Taiwan today misnomer. Taiwan may push what it does not bear careful scrutiny. First, sees as its interests, but Taiwan does as shown above, Taiwan was not not threaten to start a war. What part of China from ancient times. the world faces is not a “Taiwan Second, the People’s Republic has problem,” but a “China problem.” asserted that all land that belonged As a middle power confronted by to the great Manchu Empire belongs an authoritarian, racist, expanding to China today. In fact, during the power, Taiwan was an innocent great Manchu Empire, China itself POPULARLY ELECTED — Shown here on an inspecwas a colony of the Manchus, as tion trip of an infrastructure project, Lee Teng-hui victim of a colonial power (the was Taiwan, Mongolia, and East used his presidency to advance the cause of Taiwan's Chiang regime) that took up a repressive residence on the island Turkestan, which is now called Xin- democratization. when defeated by another colonial jiang. (Tibet had a relationship with power (China). When the Chiangs the Manchus, but whether the Manpassed from the scene, the Taiwanese chus ever truly controlled Tibet remains a single DNA group. Rather, northern people under President Lee Teng-hui’s unclear.) For China now to regard all and southern Han Chinese represent leadership peacefully transformed their these places as its own because they two distinctly different groups. Claims political structures and implemented once belonged to the Manchu Empire that Chinese are one racial group have democracy. This transformation should would be like India laying claim to no basis in fact. be valued and protected. The United Pakistan, Sri Lanka, Burma, Malaysia, Threatening Taiwan and the world, States and its allies, including Australia, and Singapore because they were all China maintains that Taiwan is a “core Canada and Western Europe, must say previously part of the British Empire. interest” over which it is willing to go “no” to China. We cannot simply wash The difficulty for Taiwan is that to war. The closest historical parallel our hands and say that the human rights Chiang Kai-shek and Chiang Ching-kuo to the rise of China today is the rise of of 23 million people do not matter. Hiswere Chinese and not Taiwanese (though Nazi Germany. The Nazis used racial tory teaches us that if we do not care for toward the end of his life, Chiang criteria to claim territory, and willingly Taiwan and instead appease China, then Ching-kuo declared that he was also employed military force to seek their we shall have to fight a much greater Taiwanese). In exercising authoritarian objectives. When Hitler claimed the and more deadly conflict later. control over pre-democratic Taiwan, primarily German-speaking SudetenIn seeking to establish democracy in the Chiangs negotiated with the world land in Czechoslovakia in 1938, British Iraq and Afghanistan, the United States without consulting the Taiwanese people. Prime Minister Chamberlain decided to has lost the lives of over 6,300 men and Thus, in October 1971 Chiang Kai-shek “appease” Hitler. Appeasement did not women in its armed forces, and its allies pulled Taiwan out of the United Nations, work then, and it will not work now have lost an additional 1,300. These and his government broke diplomatic with China. It would only be taken as a figures do not include the tens of thourelations with all countries that recogsign of weakness and encourage further sands seriously wounded, nor do they nized the People’s Republic. demands. count the huge financial costs of these Fortunately, many of the world’s China’s threats are not limited to wars. In Taiwan democracy already countries that recognized the PRC Taiwan. China has claimed the South exists – it does not need to be built – only “acknowledged” China’s claim to China Sea (which extends well to the and Taiwan’s people are more than Taiwan and did not “recognize” it. Fursouth of Vietnam) and the Diaoyutai/ ready to pay for their own defence. As thermore, many of these countries – Senkaku Islands to the east of Taiwan as noted at the beginning of this article, including the United States, Australia, “core interests.” Not only does China democracy is precious and relatively and Canada – have maintained that any crush the human rights and religions of rare. History teaches us that those who solution to the Taiwan question must be Tibetans, Uyghurs, and Mongols, it also fail to protect the rights of others often implemented peacefully. exploits their lands. Local people cannot eventually lose their own rights. Supeven gain basic employment, which porting Taiwan’s democracy costs little instead goes to Han Chinese imported Racist justification and the returns are great. from China. In addition, China seeks resources around the world – in the In addition to using false history — J. Bruce Jacobs is the Professor Middle East, Africa, Latin America, and to claim Taiwan, China also relies of Asian Languages and Studies at the South Pacific. In these places, we see on racism. The Chinese have repeatMonash University in Melbourne, AusChina bent on exploiting resources with edly stated that people in Taiwan share tralia. His recent publications include little concern for the well-being of the the “same blood, flesh, and bones” as Local Politics in Rural Taiwan under peoples who live in those places. the people in China. In fact, a genetic Dictatorship and Democracy (2008) Policymakers in Washington, Canstudy of the world’s population found and Democratizing Taiwan (2012). berra, and elsewhere often talk of a that “Han Chinese” do not constitute 32
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A Report on the Retail Sector
Satisfying Consumer Expectations
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Boxed In The market share of Taiwan’s hypermarkets versus other retail segments has begun to slip.
BY ALAN PATTERSON
IN THIS SURVEY • Boxed In
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• Taiwan’s Online Retail Business Soars p37
• Era of Change in Taiwan Book Market p40
• The New Face of Fast Food
p42
• Formosa Optical Dominates the China Market p45
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a i w a n ’s h y p e r m a r k e t s , including companies such as Carrefour, RT-Mart, and a.mart, have seen their share of the island’s retail trade slip in recent years under an onslaught of competition from convenience stores and online retailers. For the first time in the two decades since their arrival in Taiwan, the hypermarket share of the island’s retail business dropped last year – to 20.7% from 22.6% in 2009, based on information from U.S. market research firm Nielsen. The value of the hypermart business in Taiwan last year was NT$41.79 billion (US$1.4 billion), essentially unchanged from NT$41.63 billion in 2010, according to the most recent figures from Nielsen. During the same period, sales for convenience stores and supermarkets on the island made significant gains, Nielsen data show. Taiwan’s hypermarkets have taken a big bite out of the local market in just a few decades. Makro of the Netherlands was the first to set up on the island in 1989, yet the company left Taiwan years ago because Makro stores were illegally located in industrial zones. Still, the company set an example for other retailers from Europe and Northern America
aiming to tap Taiwan consumers’ strong demand for low-priced, highquality goods. But after a few decades of heady growth, the hypermart business appears to have stagnated. “For the last three years, revenue has been quite flat,” says RT-Mart General Manager Thierry Maquart. “The growth rate has been between zero and about 1.5%. We are surrounded by more and more competition. There are more newcomers in the supermarket business, and there are more and more 7-Elevens. I am surprised that our business has continued to be flat [instead of dropping], because it is quite difficult for us to attract so many consumers.” One standout from the hypermarts is U.S.-based warehouse club Costco, which grew its share of the island's retail market to 1% in 2009 from less than 0.4% in 2004, according to a Marketwatch report that cited research firm Euromonitor. Costco’s sales during the period nearly tripled from US$250 million to the equivalent of US$747.2 million, while the total market only expanded by 8.3%, Euromonitor said. Costco opened its first warehouse store in Taiwan in 1997 and since then has opened in seven other locations on the island, including
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A Report on the Retail Sector
The throngs of shoppers attest to the popularity of the Costco stores, whose business has been expanding steadily. photo : costco
two new stores last year. The company expects to open another warehouse store in the Nankan area of Taoyuan County later this year. It projects that 10 years from now it will have a total of about 20 sales locations in Taiwan. Growth has been in double digits during recent years. “Taiwan has close ties to the U.S., and consumers like to use household goods from companies such as Johnson & Johnson and P&G,” says Richard Chang, the president of Costco President Taiwan. “We bring them those products at a very competitive cost.” In some cases, Costco products sell in Taiwan for a price that is equivalent to that in the United States, he says. Chang spoke from his office at the warehouse store in Taipei’s high-tech Neihu District, the same area where RT-Mart has its main store in Taiwan. Costco’s Neihu outlet is the company’s second most profitable location in the world, trailing one located in South Korea. Costco differs from the hypermarts because shoppers there must pay a membership fee. In addition, the company does no advertising and depends only on word of mouth. Moreover, it has a rela-
tively small SKU (pronounced “skew”), industry jargon for “stock-keeping units” – or in layman’s terms, the number of different products on store shelves. Costco carries about 400 SKUs, compared with the 60,000 in an RT-Mart store. Taiwan has reached the status of a developed nation, Chang says. “The emphasis is on convenience. You have a lot of dual-income families where everyone is on the go.” Costco’s home replacement meals – ready-to-eat products that are similar to home-cooked food – have become popular, he notes.
Fewer mom-and-pop stores Just a few decades ago, anyone in Taiwan who wanted to buy imported foods or household goods had to go to little mom-and-pop shops and pay a high markup for a very small selection of goods. Chang recalls going into one of the shops and seeing the boss measure out vanilla extract as if it were an illegal narcotic. While the mom-and-pop shops have not completely disappeared, the competitive landscape has changed as if struck
by an earthquake. Where none existed 30 years ago, convenience stores in Taiwan today have reached a density that is the highest on the planet. On many urban thoroughfares in Taiwan, it is common to see 7-Eleven, FamilyMart, and CircleK all on the same block. The convenience stores quickly respond to consumer needs, even selling fresh fruits and vegetables. For the hypermarkets, the growth story has reached maturity as the superstores have been hemmed in by the competitive environment, says Nielsen Associate Director Terri Kang. “Competition has come from convenience stores and other smaller format stores like supermarkets,” Kang says. “Consumers look for shops closer to their workplaces and their homes. Taiwan shoppers look for convenience.” The big three hypermart players in Taiwan are Carrefour, RT-Mart, and a.mart. U.K.-based Tesco left Taiwan in 2005 after turning over its stores to France’s Carrefour in a deal in which the two companies swapped stores in different markets. Carrefour is the largest hypermart on the island, with 63 stores, down from 65
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about three years ago. RT-Mart, a joint venture between France’s Auchan Group and Taiwan’s Ruentex Group, is the second largest with 22 stores. In 1989, Carrefour made its entry into Asia when it arrived in Taiwan through a joint venture with Uni President Enterprises Corp. It then leveraged the experience it gathered in Taiwan to expand into other Asian markets. a.mart, originally known as Geant, began as a joint venture between France’s Groupe Casino and Taiwan’s Far Eastern Group, but since 2007 has been wholly owned by Far Eastern. With 18 stores in Tai-wan, a.mart is the only hypermart that has expanded recently, adding one store last year. In addition to its stores in Taiwan, RT-Mart has 180 outlets in China. Auchan Group’s businesses, primarily in Europe, are concentrated in such sectors as hypermarkets, supermarkets, real estate, banking, and e-commerce. The family-owned French company holds a 63% stake in RT-Mart, while Ruentex has 29%. RT-Mart does not plan to open any new stores in Taiwan until next year at the earliest, according to General Manager Maquart. “Right now, we want to come back to strong, steady growth,” h e s a y s . “ We w a n t t o p r o v i d e c u s tomers with solutions that are provided by 7-Eleven but with a lot more choices than you can find in a convenience store. The other direction we are aiming for is big-package, high-quality, high-priced products such as foods and red wine. We are targeting both extremes.” Maquart says he intends to make big changes in RT-Mart’s product line and format during the coming year, aiming for greater efficiency and better visibility of items. “When you go in our stores today, there are so many items that you cannot see what you are looking for, ” he says. He plans to cut back from the current 60,000 SKUs to about 50,000 during this year, including about 20,000 “completely new” and “high quality” items not currently sold at RT-Mart. In electronics, for example, there will be more goods from leading local and foreign brands that currently are available only in some spe-
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cialty stores. In the food and beverage category, RT-Mart is also looking to expand its already wide offering of red wine from Europe to include more choices from Australia, Argentina, and Chile. Organic wine will be a new item, Maquart says. “We can provide some very good values at very high quality that you will not be able to find in other places.” To maintain the quality of the wine, during the warm months of the year RTMart transports it by air. That expense, together with Taiwan’s import duties, can triple the cost per bottle, Maquart says. Improved lines of cosmetics and baked goods will be other new attractions for RT-Mart consumers, Maquart adds. He notes that the manager of each RT-Mart store in Taiwan has the freedom to decide which items to carry in order to satisfy the needs of local consumers.
Continued challenges Nielsen’s Kang sees significant challenges ahead for the hypermarts. “I don’t feel very excited about their strategies here in Taiwan,” he says. “It is important for hypermarts to provide good reasons for shoppers to spend more time or gas to go to their stores. They need to understand their shoppers better, whether it is about assortment, services, or even promotion methods.” Meanwhile, Costco sees plenty of room for growth. With only about 5% of Taiwan’s households registered as Costco members, Richard Chang sees excellent potential to expand market share. “The company is growing faster than before because we’ve been successful in promoting our value proposition,” he says. “We can go into different markets now. We haven’t hit a maturity milestone.” As it opens new retail outlets, Costco will open its first depot on the island in mid-2013 to help bring down transportation and logistics costs. The depot, located in the Taoyuan area, will have a 215,000 square-foot facility located on 35 acres of land. In addition, the company is looking beyond brick-and-mortar stores to e-commerce, Chang says. “We’re looking to expand that in South Korea, and
Taiwan will piggyback on that.” Store operators say that Taiwan is very open to imported brands. “The foods that Taiwanese love to eat – after their own – are Japanese and Korean,” Costco’s Chang says. “American brands are also popular with local consumers, many of whom have studied in the U.S.” RT- M a r t h a s c u s t o m e r s a t b o t h extremes of the income range, according to Maquart. He says he sees both luxury and run-of-the-mill autos in the parking lot of the main RT-Mart just across the street from Costco in Neihu. Maquart came onboard with RT-Mart in Taiwan about three months ago after spending nearly 15 years in the hypermart business in China. “When I worked in China, I found that our customers were in the low-income segment. Here in Taiwan, we have all kinds of customers. We attract low-income and high-income people.” Considerable market overlap exists among competitors in the hypermarket, supermarket, and even department store businesses, says Costco’s Chang. “You may be surprised to know that we sell diamonds. We sell DF-quality (colorless) diamonds at 20% off the retail price.” Costco is able to compete with department stores in products such as diamonds, clothing, and electrical appliances because of its relatively lower overhead, Chang says. “We don’t pay for elevator operators who greet you as you enter and exit the elevator.” In general, store operators have few complaints about government regulations in Taiwan. Nevertheless, Taiwan’s ban on the import of beef with traces of ractopamine, a drug that is used widely in the United States as a feed additive to promote leanness in meat, has had an impact on Costco Taiwan’s sales, Chang says. “We are now importing Australian beef,” he said, noting that local consumers prefer the flavor of U.S. beef. Instead of maintaining zero tolerance, Chang suggests that Taiwan establish an approval leve for ractopamine. He also notes that regulations often are changed suddenly, giving operators in the market insufficient time to adjust. “We wish the government would engage with us prior to implementing new regulations,” Chang says.
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A Report on the Retail Sector
Taiwan’s Online Retail Business Soars The leading local players have pioneered new payment and delivery systems.
BY ALAN PATTERSON
The best-selling products on Yahoo! Taiwan are cosmetics, clothes, and shoes. photo : YAHOO! TAIWAN
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partment dwellers in Taiwan typically see a familiar scene every morning in their building lobbies on the way to work. Boxes bearing the logos of Yahoo!, PCHome, and other online retailers are stacked up by the security guard’s desk, ready to be picked up. Business for Taiwan’s e-tailers is booming. The market started to take off in 2006, and since then has grown annually by about 27%, based on data from Taiwan’s Market Intelligence & Consulting Institute (MIC). The island’s e-commerce market last year was worth NT$430 billion (US$14.5 billion), according to MIC, and the research organization is forecasting 20% growth for 2012. “We expect the double-digit growth to continue,” said Amanda Chen, Yahoo! Taiwan’s director of e-commerce marketing, in an interview with Taiwan Business TOPICS. “There are still a lot of areas in e-commerce that remain untapped.” Mobile e-commerce – the use of smartphones, tablets, and laptops to buy goods while on the go – is an example of a new development in the Taiwan market, Chen says. While technophobes may wonder about the rationale for
shopping with a mobile device, early adopters in Taiwan have already been doing so to purchase big-ticket items such as motorcycles, she notes. “Buyers who have considered a purchase for a long time will sometimes make the buying decision while using a mobile device,” Chen explains. “They don’t distinguish between PC or mobile – it’s just shopping.” Overseas, internet retailers such as Amazon are changing the game by expanding online sales into intangible products such as services, which make much larger profits than books and other physical goods, she adds. “Margins for services can be as high as 70%,” Chen says. “Selling retail goods is very tough. Margins are very thin.” Yahoo! Taiwan is by far the largest online retailer on the island, followed by PCHome, based on information from Taiwan market research firm Access Rating Online. In 2001, Yahoo! Taiwan started C2C (consumer to consumer) auctions, its first e-commerce business, which today is also the company’s largest category. It launched a B2C (business to consumer) virtual shopping mall in 2008, when it merged with Monday.com. At the time, the shopping mall was a simple list of
suppliers’ names that Yahoo! users could click in order to gain direct access to the suppliers. B2C has been a relatively difficult business for Yahoo! Taiwan to expand because most large companies with branded products would rather keep control of their business by operating their own e-commerce websites, Chen says. Some have even worried about conflicts with their brick-and-mortar stores. Still, a number of branded companies started around 2009 to open “flagship” stores on the Yahoo!Kimo Shopping website, Chen says. Such brands include luxury goods such as L'Oreal, Chanel, Gucci, and Prada. PCHome, the second-ranked e-tailer overall, sees less difficulty in the B2C sector, where it claims dominance (see sidebar.) It has taken a different approach from Yahoo! Taiwan by providing customers with guarantees regarding delivery time, product quality, and other aspects of the purchase. About 57% of Yahoo! Taiwan’s online shoppers are women, according to Chen, who adds that in dollar terms men and women account for nearly the same amount of consumption. Yahoo! Taiwan’s best selling products are fashion goods such as cosmetics, clothes, and
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shoes. The next largest product category is home electronics, including hot-selling items such as Apple iPhones and iPads. For local supermarket operator Matsusei, Yahoo! Taiwan even helps to sell fresh fruit and vegetables online. “In the beginning, everyone thought ‘how can this be possible’?” Chen says. “For people like me who go home late from the office and have no time to shop, the food is shipped to the office.” There is no significant difference in consumption patterns among users within the age group ranging from 21 to 44, Chen says. “We rarely pay a lot of attention to demographics. Maybe our society and our lifestyles are too complex.” She notes that the difference in lifestyles among married and unmarried women, for example, is a more useful indicator for the company. Online product sales in Taiwan tend to be very news driven. The recent surge in popularity of basketball star Jeremy Lin is a prime example. Between February 11 and February 15, the online price of an autographed Jeremy Lin card soared to NT$110,000 from the original asking price of NT$1, according to Yahoo! Taiwan.
Taiwan has become something of a pioneer in payment and delivery systems for online goods, according to Yahoo!’s Chen, with buyers able to pay for and pick up goods at nearby cooperating convenience stores. It’s a simple solution for people who are reluctant to make payments online, she adds. Companies in other nations with high convenience store densities, such as Japan, are coming to Taiwan to study the payment system, and China’s large urban markets are also likely to adopt something similar, she says.
T-tailers In addition to operating on the internet as e-tailers, several companies in Taiwan are television “t-tailers.” Fubon Multimedia Technology Co., part of the Fubon Financial Holdings group, operates the Momoshop TV home shopping service. Momoshop is a subsidiary of telecommunications service provider Taiwan Mobile Co., which is also affiliated with the Fubon Group. Focusing on TV home shopping, Fubon Multimedia was founded in June 2004 as a joint venture between the
Fubon Group and WOORi, a South Korean TV home shopping operator. The Momoshop channel is on the air 24 hours a day and reaches about 5 million households in Taiwan. Senior Marketing Planner Kelly Chang declined an interview request from TOPICS, citing a silent period leading up to the company’s listing on the Taiwan stock market. Another virtual store is the Eastern Home Shopping & Leisure Co., which operates television shopping services on multiple cable TV channels. Marketing and Planning Department Manager Jason Hsieh also declined to accept an interview request, citing a need to keep company information confidential. Localization is a key reason why big e-commerce companies such as Ebay have so far failed to take a large share of the Taiwan market, says Yahoo!’s Chen. “Taiwan consumers like visual excitement,” she notes. For its website, Ebay Taiwan had to follow the style of its parent company in the United States, which used long columns of text with just a few small pictures. “But Taiwanese don’t like to read so much information,” Chen says. Yahoo! Taiwan fought with its parent company to get permission to put lots of flashy photos on its website to get the attention of Taiwan netizens and help build a large user base. The local subsidiary has outpaced the performance of Yahoo! in other parts of Asia, which is one reason why the Taiwan unit also serves as the headquarters for the Asia Pacific region. With the online retail business in Taiwan accounting for less than 5% of total retail sales on the island, e-tailers see plenty of room for growth. But the 20% growth forecast for this year indicates a slowdown from the near 30% growth rate of recent years. As the market matures, the e-tailers may need to come up with some new strategies if they want to sustain their phenomenal growth.
Yahoo! Taiwan makes it possible to order a variety of meals online. photo : YAHOO! TAIWAN
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PCHome’s Overseas Push
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hief Operating Officer Vincent Hsieh can be credited with making PCHome a recognized brand in Taiwan’s online retail business, and he’s starting to push into global markets. PCHome is aiming at the United States, Australia, China, and Japan – what Hsieh calls “core countries” – for the company’s overseas expansion. With the exception of fresh food, people can buy just about anything from PCHome and expect delivery to their doors in Taiwan within 24 hours. That includes daily-use items such as tissues and mineral water, as well as electronic goods such as iPhones and laptop computers. PCHome has a stock-keeping unit list of 700,000 items available from its virtual store, whereas the typical brickand-mortar superstore may stock about 60,000 items. In the 12 years since Hsieh joined PCHome and transformed the company from an information portal into an e-commerce website, monthly revenue has soared from NT$10 million to the current approximately NT$1 billion. In recent years, PCHome’s revenue has been growing by about 30% annually. In comparison, the “physical channel” has only been registering 0 to 3% growth annually in recent years. In an interview with Taiwan Busienss TOPICS, Hsieh said that in five years he expects PCHome’s revenue to grow to the equivalent of about 10% of the physical channel, up from about 3% currently. PCHome has room to grow because its operating costs are lower than those in the physical channel, he adds. Hsieh says his warehouse operation is even more efficient than that of online retail giant Amazon, which he has visited. Currently, PCHome counts on overseas customers for about 1% of its revenue. That business originally started with Taiwanese who had moved abroad but wanted to continue doing business with PCHome. After about a year of doing business abroad, the company reports that monthly overseas revenue has grown to about NT$10 million. That suc-
cess prompted the company to launch an English-language website in February this year to support the aim of doing business internationally with English-speaking customers. Now selling in 105 nations, PCHome has encountered some regulatory problems in China, Hsieh says. But the biggest problem for the company in its foreign expansion is building brand recognition. To help overcome that obstacle, Hsieh reports that he is looking at mergers or acquisitions with logistics-related companies in places such as Malaysia and Thailand. PCHome is Taiwan’s leading B2C website, unlike Yahoo! Taiwan, which dominates the C2C business. Hsieh says he has deliberately opted to emphasize consumer-oriented business. “C is the final point of value creation. I hoped that my ‘C’ could receive consistent quality, so I decided to do B2C,” he says, noting that a C2C business model is less likely to achieve consistent quality standards. PCHome takes orders from customers and transfers the order to its vendors. “We push the vendors to meet our service quality,” says Hsieh. “We can give penalties to vendors who fail to meet our quality standards.”
Guaranteed delivery time In 2006, PCHome decided to set up a warehouse to simplify logistics and assure more consistent quality. Around that time, it also started guaranteeing delivery within 24 hours, promising to pay an NT$100 penalty if the deadline is missed. From that time forward, PCHome’s business grew rapidly, enabling the company to became Taiwan’s largest online B2C retailer. “This 24-hour delivery has changed peoples’ lives,” Hsieh says. “They don’t need to go to superstores. They don’t need to do detailed purchase planning. If they find they need something, they go to PCHome.” PCHome is continuing to push for even shorter delivery times. In the greater Taipei area, for example, customers who
place orders in the morning can expect to receive delivery during the afternoon. A future objective is to be able to tell customers even more precisely when they can expect to receive the goods. In addition, PCHome has just started a new service for nighttime delivery, and already 6% of customers are choosing that service. PCHome also offers money back for defective goods, even if they may have been damaged by customers after delivery. “If we trust people and people trust us, it means our business will become better,” says Hsieh. “We want our customers to feel our service is the best.” PCHome is also engaged in the B2B and C2C sectors, but those operations remain much smaller than the mainstay B2C business. Its joint venture with eBay in C2C, Ruten, is owned 65% by PCHome. Hsieh says PCHome customers tend to be in the higher income brackets and spend more per purchase than counterparts at other online retailers in Taiwan. About 90% of transactions are completed by credit card, with the average price per order at around NT$4000. Selling 10,000 notebook computers per month, PCHome is the second-largest retailer of laptop PCs in Taiwan, behind only brick-and-mortar retailer Tsann Kuen Enterprise, according to Hsieh.“For this kind of product, we have a volume advantage. That means we can sell cheaper than the physical stores.” But because brandname vendors try to keep consistent prices for their goods whatever the channel, PCHome passes the benefit to consumers through such methods as offering memory cards for free. Hsieh says that Taiwan’s regulatory environment is generally good, but he has at least one gripe: the Taiwan government does not allow the sale of alcoholic beverages via the internet out of concern that underage people would try to make purchases. He notes that it is possible to buy beer and wine over the internet in some nations overseas. “We are working very hard with the Taiwan government to change this,” he says, noting that there are ways to verify the age of a buyer online.
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Era of Change in Taiwan’s Book Market The major chains are losing business to the online booksellers, even as interest in reading seems to be declining. BY DENNIS ENGBARTH
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hree or four decades ago, literaryminded visitors to Taipei were overwhelmed by the proliferation of small bookstores along ChongQing South Road just north of the Presidential Office Building. In comparison, the fourfloor San Min Bookstore, still present, seemed massive. Low-cost pirated editions of Chinese classics and major Sinological works, as well as Western fiction, were also on sale at Caves Books on ZhongShan North Road, while diligent researchers could find rare volumes, including banned books, in the string of used bookstores lining GuLing and DingZhou Streets. Times have certainly changed. Although nearly 63% of bookstores in Taiwan remain single-owner proprietorships, the role of drivers of the bookstore market and of wider consumer cultural tastes nearly two decades ago was taken over by chain bookstores, notably Eslite Books and Kingstone, whose branches can be found all over Taiwan. But Taiwan's chain bookstores are now faced with the specter of becoming cultural dinosaurs in the face of the explosive growth of online internet bookstores, notably Books.com.tw (博客來), and of electronic book publishing. All booksellers in Taiwan, however, must cope with major changes in the overall environment, including an apparent decline in book reading among Taiwan’s populace, at least according to some research findings. Although a survey of 1,079 Taiwan adults carried in the October 2010 issue of Global Views Monthly showed that the average number
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of books read per month had risen to 2.02 – up from 1.72 in a similar survey in 2007 – less than 48% of respondents to a Government Information Office (GIO) survey released in February 2012 said they had purchased a book within the previous year, and just 25% said they had bought one within the past month. By genre, novels were the most popular, chosen by 34.3% of the book purchasers, followed by recreation and travel (33%), psychology and selfimprovement (31.2%), textbooks (28.1%), and other literature (25.2%). Nearly 70% of those surveyed did some purchasing at chain stores, 37.3% at independent bookstores, and 37% from online bookstores. Also surveying bookstores, GIO found that nearly 45% of the responding 481 retailers reported a decline in their annual sales from 2009 to 2010, with only 22% reporting an increase and 29.5% percent saying sales had stayed about the same (the remainder did not answer the question). In addition, the GIO survey found that net sales of books and related products by the three largest retailers rose 18%, from NT$7.97 billion (about US$266 million) in 2009 to NT$9.43 billion (US$314 million) in 2010. Among the three, Books.com.tw saw sales rise by 33%, Eslite’s book division by 12%, and Kingstone by 4%. In 2011, Books.com.tw’s net sales reached a total of NT$5 billion based on the sale of over 14 million books as well as other products. Eslite expanded overall sales, including household goods, by 12% in 2011 to NT$11 billion through its net-
work of 39 stores. It also reported that the number of visitors to its stores had risen from 100 million in 2010 to 120 million. Kingstone did not provide information on net revenues for 2011, but its webpage indicates that the number of its outlets declined from 76 in 2010 to the current 72. The key question in the market now is whether the big bookstore chains such as Kingstone and Eslite have already lost market leadership in the face of the challenges from internet bookstores and electronic publishing. Certainly, size offers little immunity, as reflected by the virtual disappearance of the Hess and New Schoolmate chains in the last decade. Despite Kingstone’s larger scale, most industry sources agree that Eslite has emerged as Taiwan`s dominant chain, evolving from modest beginnings in 1993 as an aesthetic and arts bookstore to become the epitome of Taiwan’s avantgarde consumer culture. By the mid2000s, its DunHua flagship operation in Taipei, featuring a 24-hour bookstore and coffee shop, had become a cultural mecca, and it is now described by local media as a site “loved by mainland Chinese tourists,” even though the coffee shop is no longer open around the clock. According to cultural commentator Chang Tieh-chih, “in the 1990s, Eslite played a radical role in Taiwan’s culture by introducing a wide range of new cultural trends, including gay and social movement books, lectures, and artistic exhibitions, and became a pacesetter in Taiwan’s reading-culture appreciation.”
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The rise of Books.com.tw But recently the rapid rise of Books. com.tw, which was established in 1995, seems to be a game-changer. Absorbed into the Uni-President Group in 2000, Books.com.tw gained exclusive rights for delivery to readers through Uni-President Group’s Wisdom Distribution Service to over 4,800 7-Eleven convenience stories in Taiwan, outflanking Eslite and the other chains, all of which rushed to set up online service in the wake of Books.com. tw’s stunning growth. According to Publishers Weekly, Books.com.tw surpassed Eslite’s sales total in 2009 by selling 10 million volumes, increasing the quantity to 11.3 million in 2010 and 14 million last year. It also achieved 70% growth in sales of department-store goods, according to a company spokesperson.
Chang Jing-ju, books department director at Books.com.tw, says the company has begun to shift from being a bookstore “to becoming a platform to sell virtually anything, like Amazon.” “Nevertheless, we still want to remain basically a bookstore, and books account for about 70% of our total sales,” says Chang. She adds that “the effort we put into design and our vision are different from ordinary online purchasing platforms because we bring our love of reading.” Reflecting this orientation was Books.com.tw’s decision in 2010 to set up “Okapi,” an online book-appreciation blog that features daily special columns every day and last year posted nearly 200 exclusive interviews with authors. Chang Tieh-chih says Okapi “shows that Books. com.tw is not content with just being a bookstore but wants to become a leader in cultural and reading appreciation.”
There is little likelihood, however, that online bookstores will soon totally supplant brick-and-mortar bookshops. One reason was expressed by Eunice Lee, a translator and English instructor in her mid-twenties, who says she has purchased books from Books.com.tw to take advantage of major discounts, but still prefers to shop at Eslite “because of the good reading atmosphere and their service.” Chang Jing-ju, who formerly worked at Eslite for over a decade, concedes that while online bookstores can offer fast search results and rapid response to new social trends, “you can meet with someone at Eslite, but not in online bookstores, which cannot provide either space or feeling.” Says Chang: “People who shop on the internet cannot see or feel the book they are considering to purchase.” To make up for that, “we rely on product managers to grasp new events and trends
For Foreign-language Books
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aiwan’s premier provider of English-language works on Sinology, current affairs, literature, and language-learning materials has long been Caves Books, even if its presence in Taipei is now overshadowed by the broad selections offered in Eslite Book branches and the recently downsized Page One store in the Taipei 101 mall. Now marking its 60th anniversary under the slogan of “Carrying On History,” Caves has quietly developed into one of Taiwan’s largest book chains – with 26 stores, including eight foreign-language and general stores, plus outlets on 13 university campuses. The company, which has over 400 employees, reports that sales last year came to NT$900 million. Emily Kuo, executive manager of the Books New Business Development Team, says that since “purchases of general Chinese-language books and foreign-language trade books are declining,” Caves’ senior management is putting added emphasis on creative stationery and other youth-oriented “non-book” lines and language-education services to boost revenues. But she adds that “our chairman is resolute that Caves will continue to provide foreign-language trade books.” In addition, Caves is upgrading its online bookstore to introduce new or soon-to-be published books, with discounts offered for prepublication purchases. An outlet for English-language works of a more scholarly nature is Bookman Bookstore, whose main store is opposite National Taiwan University. Founded in 1977 by a group of NTU graduates, Bookman is a publisher, importer, distributer, and retailer of a wide selection of foreign language works in philosophy, history, literature, children’s books, and language study. It operates two
stores in Taipei, one each in Taichung and Kaohsiung, and an online bookstore (www.bookman.com.tw). “We offer English-language books in fields that other bookstores avoid, such as Western philosophy, drama, poetry, movie and theatre scripts and appreciation, and children’s and juvenile literature,” says Chairman Jerome Su. Japan`s Kinokuniya Books, which began operation in Taiwan in 1987, is the only major international book chain in Taiwan. Its five stores on the island include two in Taipei, two in Kaohsiung, and one in Taichung. All offer rich stocks of Japanese- and Chineselanguage books and magazines, along with a sizable collection of English paperbacks. Tsai Yu-ju, deputy manager of Kinokuniya’s business promotion department, notes that the online store (www.kinokuniya.com) offers access to the Japanese chain’s huge book-finding service, including delivery in Taiwan without Taiwan readers being charged for international shipment. “If the order isn’t for very special books, we can provide it very quickly, if necessary transferred from any of our branches in Japan.” Readers looking for French books can head to the two outlets of Librairie le Pigeonnier – or its bilingual website (www.llp. com.tw) – or to the several Fayaque Co. stores, formerly known as FNAC (www.fyq.com.tw). Readers who are not literate in Chinese may be disappointed in Taiwan’s numerous online bookstores as none of them except for Librairie le Pigeonnier have bilingual capacity. — By Dennis Engbarth
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and bring together and introduce related books, magazines, and other material.” The sluggish book market over the past decade is largely attributed to the increased amount of time people spend playing online games or checking email instead of reading books. Another factor cited is the orientation of the education system toward preparation for examinations, rather than fostering general creativity. “Students are willing to spend NT$10,000 for cosplay or fashions, but not to buy books,” laments Bookman Books Chairman Jerome Su. Besides the shift in consumer behavior, a major concern of both publishers and small bookstore owners is the heavy discounting on new titles engaged in by chain stores and online channels, frequently more than 20% of the list price. Tonsan Publications founder Chen Lunghao says that “if a major chain store buys a book [from the publisher] for half the list price and sells it at 70% of the list price, while we get the book at 75%, the chain can undersell me from the start and still make a profit.” He notes that “the distribution companies divide up the first printing of new books almost entirely among the chain stores, and smaller bookstores often must wait for the second printing, which intensifies our initial disadvantage.”
Caves' modern Taichung store is part of what has become an island-wide chain. photo : caves bookstore
Another problem is the massive importation from China, at under market prices, of scholarly, current affairs, literature, history and technical books, frequently in violation of copyright restrictions. Taiwan Independent Bookstore Alliance founder and Small Small Bookstore Manager Sappho Liu says that “after the initial discount period is over, the higher cover prices take effect and thus further discourage consumers from buying books.” The Independent Bookstore Alliance was founded in 2008, she says, “as a platform to let the public know that there are alternatives to chain stores and to
encourage a revival of reading.” It seeks to counter “cutthroat discount wars” and to campaign for measures to restore market order. C o m m e n t a t o r C h a n g Ti e h - c h i h credits independent book stores with posing a challenge from below to Eslite’s cultural domination by sparking new interest among youth in community activist and social movements and acting as community centers for learning. “Despite their slim resources, independent bookstores are displaying a range of activities and dynamism that competes with Eslite,” he notes.
The New Face of Fast Food As the sector matures, stores are competing on ambience as much as on the food itself. BY AIMEE WONG
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raditionally – if such a term can even be applied to something as modern-age as fast food – the fast food industry has been a uniquely American development. But as its influence has spread across the globe, it’s taken on a whole new spin, recasting conventional burgers and fries with rice buns, salads,
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and coffee-shop decors. The market leader both internationally and in Taiwan, McDonald’s, is probably the first name many think of when asked to name a fast food restaurant. The chain had 361 stores on the island as of last December and aims to reach 386 by the end of this year. But
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beyond the golden arches, Taiwan has a decent assortment of fast food restaurants, reflecting the island’s cornucopia of Eastern and Western culinary influences. Those who have sampled fortune cookies and General Tso’s chicken in North American-style Chinese restaurants know that food imported from other regions tends to take on a local flavor. For example, Burger King found that Taiwanese don’t fancy the taste of dill pickles and prefer its smoky barbeque sauce with sweet, rather than savory, overtones. The Home of the Whopper entered the Taiwan market in 1990 and has been operated as a joint venture between Burger King and the Great Wall Group since 2008. Its 42 stores in Taiwan offer its signature flame-grilled burgers, made with grass-fed New Zealand beef. The environment in Taiwan is actually a very dynamic situation,” says Albert Lee, general manager of Home Chain Foods, Ltd. (Burger King Taiwan). “For Americans, a burger or sandwich can be a main course, but in Taiwan meals revolve around rice or noodles. So the challenge is how to tie our product into the Taiwanese meal concept.” And try selling hamburgers in a country in which a significant portion of the population traditionally avoids eating beef. “In the U.S., 90% of meat consumption is beef, but in Taiwan it’s maybe about 50% pork, 45% chicken, and only 5% beef,” says Lee. “The Whopper is definitely our best-selling product, but the demand for chicken products rises every year.” Part of Burger King’s solution involves coming up with distinctive marketing programs, such as the company’s plans to switch to fresh, made-to-order meal production in the third quarter this year. Burger King also received some press attention last year with its build-yourown BK Stacker promotion that garnered an order for a 765-layer sandwich. For any company operating in the current economic environment, keeping costs low is a central concern. But for an industry for which one of the main inducements to customers is affordability, consumer expectations of cost can make it difficult to maintain profitability.
“The first challenge is affordability,” says Lee. “Consumers in Taiwan have a set amount of money they are willing to spend – for example, about NT$39 for breakfast and between NT$75 and $80 for lunch.” Though Taiwanese consumers usually do not make a point of buying local products, the fast food companies tend to source local ingredients mostly for cost reasons. Customers seem to care more about environmental matters such as recycling and waste reduction, and fast food restaurants’ garbage containers are divided into different categories of recyclables. Many will offer an incentive for customers to bring in their own cups. At KFC, for instance, patrons can receive free drinks after bringing their own cup five times. But as they continue to expand, labor remains the most persistent challenge for most large chain restaurants. As the longest-operating fast food chain in Taiwan, locally owned T.K.K. Fried Chicken is well acquainted with the difficulty. “For chain stores like ours, capital isn’t a limitation – workers are. Our speed of expansion is limited by our ability to find good store managers,” says Jackal Lee, T.K.K.’s vice general manager. “Real estate prices are high for prime locations, but if you offer a good product and good service, the return on your investment is compounded – but if it’s executed poorly, the situation is just that
much worse.” Tr a c i n g i t s o r i g i n s t o a c h i c k e n farming business looking for a way to better monetize its product, T.K.K. Fried Chicken opened its first store on Ximending’s movie theater street in 1974 and now operates 34 stores across the island, specializing in the freshest meat (originally from its parent company’s chicken farms), a thin batter designed to absorb as little oil as possible, and a liberal dusting of black pepper. T.K.K. offers a distinctly Taiwanese flavor with products like fried chicken neck, sticky-rice-filled buns, and fries cut from organic Tainan sweet potatoes. Jackal Lee says there is still room for growth in Taiwan’s fast food industry. “McDonald’s appeal is that you know exactly what you’re going to get. It doesn’t matter when, where, or who makes their products – the quality is the same. This is what we can learn from the international brands. We all draw our workers from the same pool of Taiwanese youth, yet how can they be so successful at standardizing their products?” But with real estate prices rising exponentially, chain restaurants also struggle to find new store locations and make do with smaller spaces. Burger King’s business strategy involves developing smaller restaurants while maximizing the dining space. One strategy to minimize the space needed, employed by most major chains, is to promote delivery service.
The McCafe section of McDonald's restaurants offers fast service for coffee and dessert items. photo : MCDONALD'S
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“It’s different from the U.S., where the landscape is larger and people usually drive to the store,” Albert Lee says. “About 70% of Burger King’s U.S. sales come from the drive-thru. But in Taiwan, J a p a n , H o n g K o n g , w e d o n ’t h a v e enough land to build a drive-thru and the demand isn’t there – yet our delivery service is always increasing in popularity.” KFC’s expansion has been limited by the size of property necessary to accommodate its larger-than-average kitchens, containing two full-size industrial ovens. With 129 stores, KFC has been in Taiwan for 26 years and was operated by Yum! Brands until two years ago, when it was transferred to the Jardine Matheson Group, whose holdings in Taiwan also include IKEA, Wellcome, and Jasons MarketPlace. “We’re different from other brands that have some products made in factories or microwaved,” says Vivien Ku, senior manager of public affairs for KFC
Taiwan. “Our ingredients are all shipped raw, and then we marinate, bread, and roast and fry our chicken in each store. Biscuits are made from scratch. So even though it’s fast food, it really is very fresh.”
Interior design Wi t h s p a c e a t a p r e m i u m , c o m panies have spent millions of dollars over the past few years remodeling their restaurants to attract customers with comfortable, modern designs that look more like coffee shops than traditional fast food restaurants. Burger King’s Guanghua location, located near Guanghua Digital Plaza, caters to its specialized clientele with personal iPod listening booths, each equipped with an iPod-charging speaker dock. Patrons can listen to their own music playlists while dining. “Restaurants sell more than just food – we’re selling the atmosphere, the environment, the meal eating experience,” says T.K.K.'s Jackal Lee. “The market for fast food consumption in Taiwan is limited, so fast food restaurants are striving for a piece of the coffee shop business.” Though fast food restaurants struggle to overcome the stigma of serving “junk food,” MOS Burger seems quite confident about its reputation for healthy
Burger King's Albert Lee, above, and one of the chain's Taichung stores, below. photo : BURGER KING
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offerings like a seasonal lettuce-wrapped burger and soymilk chicken soup. In Taiwan since 1990 and operated by franchisee An-Shin Food Services Co., the Japanese brand is the second-largest fast-food chain on the island, with 219 shops. The restaurant is known for Eastern-style made-to-order fast food, with seafood burgers and some selections with buns made of rice. With MOS’s made-to-order system and table-side delivery, orders can take a bit longer to before the food arrives. Emphasizing their use of fresh ingredients, during the spring the MOS restaurants offer raw vegetables for sale in front of the store, and once a year MOS sends its store managers to the farms to pick vegetables and learn more about the produce. “We do this to promote Taiwan’s farming products – we’re not making a large profit on these sales,” says Chia Huang, a public relations officer at An-Shin Food Services. Meanwhile, other chains have stepped up the effort to remain competitive in an increasingly health-conscious environment. Taiwan law already requires posting nutrition information in-store, but restaurants have also begun offering healthier choices for set meals, such as juice, soup, and salad. K F C Ta i w a n e v e n p r o a c t i v e l y removed toys from its kids’ meals in light of pending legislation that would ban them due to concerns about childhood obesity. The draft bill, the National Nutrition Act, would also require that children’s meals meet certain nutritional standards. While all the major chains have plans to expand, it is considered unlikely that another brand could enter the market at this stage. Real estate, labor, and health concerns aside, there are only so many consumers in a country that is saturated with restaurants. Brands such as Wendy’s and Hardees were formerly in the market, but pulled out some years ago. “It would be almost impossible for another competitor to survive in Taiwan,” says Burger King’s Albert Lee. “The size of the market is very condensed, and the existing players have taken all the market share. You need economic scale to survive. I can’t imagine
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others will be able to penetrate or maintain a presence in the Taiwan market in the next few years.” T.K.K.'s Jackal Lee agrees: “I think fast food will follow the fashion due to health concerns. But will it continue to gain popularity? It probably won’t. The fast food industry in Taiwan is probably already at its peak. We’ve already maxed out the number of stores in Taiwan for a population of 23 million people. Even McDonald’s has reached sort of a plateau in stores. There won’t be much change; it’s just a matter of who goes up and who goes down.”
Formosa Optical Dominates the China Market BY JANE RICKARDS
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hen it comes to successful Taiwanese retailers in mainland China, Taiwanese eyewear specialist Formosa Optical is something to behold. The retail chain, which provides professional optometry services along with spectacles, contact lenses, and eye-drops, has cornered the market in China with over 1,100 stores, including one in farflung northeastern Harbin province, says Formosa Optical Technology Co. spokesman Chou Kolun. The group has announced plans to expand its Chinese presence to 2,000 stores in five years, and it now calls itself Asia’s largest eyewear manufacturer. It’s a far cry from the chain’s humble beginnings in Taiwan in 1956, when founder Chen Kuo-fu and his wife used NT$2,000 to open a shop with total floor space of five pings (16.5 square meters). Chou explains that the Taiwanese chain, which began its expansion in China in 2000, was able to stay ahead of local competition by getting into the
market early and utilizing the proprietary Chinese-language training system it had developed in Taiwan. Formosa Optical stores (known in Mandarin as Baodao Yanjing 寶島眼鏡) offer some highly specialized services, including asymptotic multi-focal lenses and astigmatism and corneal discoloration contact lenses. The secret to the chain’s Chinese success, he says, is its heavy investment in training staff for two years before they start to work in a store. The company now has 11,000 employees in China and pays them around 60% more than the average Chinese retail sales assistant to retain them. “We set a high threshold and it’s hard for newcomers to cross it,” Chou says, adding that Formosa Optical’s closest competitor in China has a little over 200 stores. Sharing a common culture also helps. After a false start in Wuhan, the group then set up stores in Xiamen in Fujian Province directly across the Taiwan Strait, and business really took off as the Taiwanese managers felt more comfort-
able in a cultural environment that was closer to Taiwan’s. There are now over 30 stores in Xiamen alone, and many of the group’s executives in other parts of China are natives of Xiamen. It was also easier to set up manufacturing supply chains in this southeastern city, he says. Formosa Optical, chaired by Tsai Kuo-chou, operates separate companies on the two sides of the Strait, although they share the same branding. Tsai declined to disclose figures for the amount of mainland investment or revenue, but Formosa Optical has 370 stores in Taiwan with around 1,300 employees and NT$4 billion (about US$133 million) in annual sales. The company’s goal is to expand to 600 stores in Taiwan by 2015. Formosa Optical is not the only Taiwanese company to enjoy retail success in China. Others include Daphne, which has a market capitalization of US$1.6 billion according to Forbes and is now the second-biggest shoe seller in China, and RT-Mart, the largest hypermarket in China by retail sales.
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behind the news
Getting Taiwan into the TPP Despite determination to join, time is needed to prepare certain sectors of the domestic economy. Agriculture is the sector of the economy most likely to feel threatened by the liberalization of imports. photo : cna
BY DON SHAPIRO
F
o r Ta i w a n , a h e a v i l y t r a d e dependent economy that for political reasons is facing exclusi on f rom t h e r eg io n a l tr a d e b lo c developing around ASEAN and China, the current negotiations by the United States and eight other countries to form a Trans-Pacific Partnership (TPP) presents a potential pathway to avoiding trade isolation and enhancing its economic position in the Asia-Pacific. Trade rival South Korea’s conclusion of free trade agreements (FTAs) with the United States and the European Union, and its coming negotiations with China, add to the pressure on Taiwan to seek more bilateral or multilateral trade pacts. On several public occasions, including his appearance at AmCham Taipei’s Annual General Meeting in November last year, President Ma Yingjeou has clearly stated Taiwan’s desire to seek membership in the TPP. Taiwan officials attending Asia-Pacific Economic Cooperation (APEC) forums have reportedly passed the message to counterparts from the existing TPP participants that Taiwan hopes to engage in bilateral consultations with each of those countries to help pave the way for 46
eventual TPP entry. Currently nine countries – Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States, and Vietnam – are involved in the TPP negotiations, with Canada, Mexico, and probably Japan expected to be added in the near future. The stated goal is to continue to expand as more countries agree to accept the group’s high ambitions for fostering freer trade. So far, 11 rounds of negotiations have been held, most recently this month in Melbourne, Australia. If Taiwan were to gain entry and sign the multilateral agreement, it would be the equivalent of having FTAs with each of the other participating economies. B u t Ta i w a n i s l i k e l y t o f a c e a number of challenges – both internal and external – before it may ultimately take its place within the TPP. In his remarks to AmCham, Ma focused on the internal difficulty – the continuing “protectionist tendencies” among various sectors that could be adversely impacted by import liberalization. He set out a 10-year timeline for Taiwan to join the agreement, so as to provide sufficient time for the government to “do a lot of communication and persuasion
to make people understand” the importance of Taiwan’s inclusion in the TPP. Deputy Director-General Chang Chun-fu of the Bureau of Foreign Trade (BOFT) told Taiwan Business TOPICS that the government has begun studying the adoption of a program similar to the Trade Adjustment Assistance provided in the United States to portions of the economy adversely affected by import liberalization. He said the Industrial Development Bureau is looking at measures for the manufacturing sector and the Council of Agriculture for farming. But he noted that broad public support can be expected for TPP participation, saying “it’ll be less controversial than ECFA, since anything that involves China becomes very politicized in Taiwan.” The current brouhaha in Taiwan over the authorities’ plans to ease restrictions on imported U.S. beef containing the feed additive ractopamine demonstrates the political sensitivity of many trade issues, especially those involving the agricultural sector. But unless the beef problem is resolved, the U.S. government is unlikely to welcome Taiwan into TPP negotiations. Confirming that view, Jeffrey Bader,
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behind the news
former senior director for Asia in the Obama administration’s National Security Council, said during his recent visit to Taipei that if Washington considers that Taiwan is not playing by the rules regarding the application of scientific standards to food imports, it would not support Taiwan’s accession to organizations such as TPP. The nine current TPP countries have set an explicit policy that any bilateral issues between a potential new partner country and any of the current members must be adequately resolved before the new application would be considered. More broadly, willingness to liberalize agricultural trade is regarded as a necessary condition for taking part in the “high-level, gold-standard” agreement that TPP aspires to create.
What will China think? Externally, the biggest question mark is what the attitude will be of the current TPP members with regard to Taiwan’s participation. Besides Canada, Mexico, and Japan, two countries – South Korea and China – are most often spoken of as potential candidates. But Taiwan is hardly ever mentioned in this context in international forums, even though it ranks among the world’s top 17 trading economies. Besides the beef issue, which would deter the United States from championing Taiwan’s cause at this time, another factor may be that some other TPP participants are looking for a signal from China that it would not object to Taiwan’s participation. When Taiwan completed its World Trade Organization (WTO) negotiations in the 1990s, it had to wait several more years for accession because of Beijing’s insistence that it enter first, even if only by a few minutes. Might a similar situation arise with TPP? “It’s possible, but the good thing is that we have ECFA,” says Mignonne Chan, executive director of the Chinese Taipei APEC Study Center at the Taiwan Institute of Economic Research. “It may give China the sense that Taiwan isn’t negotiating an FTA without having first negotiated with them.” At a time when China is trying to
improve cross-Strait relations, she says, Beijing may wish not to alienate public opinion on this side of the Strait by appearing to block Taiwan’s access to TPP, especially since the organization is a non-political entity that does not require statehood for membership. According to the TPP charter, it is open to all members of APEC (where Taiwan participates as “Chinese Taipei”). But Chan adds that China’s actual stance may depend on how smoothly the next ECFA negotiating rounds proceed. In general, China’s attitude toward
TPP seems to be changing. In its original incarnation as the Pacific Three Closer Economic Partnership initiated by Chile, Singapore, and New Zealand in 2002, as well as the Pacific Four (P4) created by the addition of Brunei in 2005, the grouping was too small to be seen as a major force in world trade. But the character of the organization (and the name) changed in early 2008 with the participation of the United States, followed later the same year by Australia, Peru, and Vietnam. Malaysia came in in 2010.
Services Agreement is Another Opportunity Besides the possibility of joining the TPP, Taiwan may have the chance to participate in a plurilateral agreement on liberalizing trade in services. It is currently one of 18 countries (also including the United States) that are taking part in a series of meetings in Geneva, headquarters of the World Trade Organization, to discuss the feasibility of establishing such an agreement. The initiative emerged from an informal subgroup that had formed during the Doha Round negotiations at the WTO and became known as the Real Good Friends (RGF) of liberalization in services. Frustrated by the lack of progress in the Doha Round, they decided to look for a way to move forward on at least part of the Doha agenda. Besides Taiwan and the United States, the other original members of the group attending the exploratory meetings are the European Union, Japan, Canada, Australia, New Zealand, Norway, Switzerland, Singapore, South Korea, Hong Kong, Mexico, Chile, Colombia, and Pakistan. Recently two others, Costa Rica and Peru, have joined. “Taiwan has always supported liberalization of trade in services – that’s the reason we are in the RGF group,” Chang Chun-fu, deputy director-general of the Bureau of Foreign Trade, told Taiwan Business TOPICS. “If you look at the commitment of WTO members to liberalization in trade in services, Taiwan is among the top 20, even better than some developed countries.” In international trade parlance, “plurilateral” agreements are considered to be those among a select group of like-minded countries, as opposed to “multilateral” agreements among a much broader group. In plurilateral agreements, it is less common for signatories to be able to negotiate certain exceptions or reservations.
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behind the news
Leaders from the TPP negotiating economies posed after a meeting while they were in Honolulu for the 2011 APEC leadership forum last November. Photo : WIKIPEDIA
The U.S. involvement was widely viewed as a strategic move to ensure continued American influence in the Asia-Pacific, particularly when the United States was excluded from the “ASEAN Plus X” efforts to create a regional trading bloc. At first, some commentators portrayed the TPP initiative as aimed at countering China’s rise, but Washington has made an effort to dispel that interpretation, including assurances that the PRC would be welcome to join the TPP negotiations. China, however, might bridle at some of the conditions that TPP would impose, such as planned restrictions on the role of state-owned enterprises in the economy. Other commentators note that the TPP countries are already a mix of economies at different levels of development, and that even fully developed countries may have issues that are considered particularly sensitive, such as IPR rights and protection of the agricultural sector. Japan’s leadership, for example, will need to demonstrate considerable political will to overcome resistance from certain industrial 48
and farming sectors if it decides to pursue TPP membership. The shifting domestic balance of power in Japanese politics makes that exercise particularly challenging. The description of TPP as a “gold-plated, 21st century free trade agreement” refers to the objective of going beyond the tariff-cutting arrangements of most FTAs to also encompass “behind-the-border” issues such as regulatory barriers that interfere with the free flow of trade. The final TPP agreement is expected to seek to promote regulatory compatibility, increase competitiveness, lower the cost of doing business, and assist SMEs in doing international trade. Alongside the APEC forum in Honolulu last November, leaders of the TPP countries agreed on the overall framework for the agreement. Besides tariffs and other barriers to trade in good, the scope was said to include services, investment, competition, customs rules, capacity building, e-commerce, environmental issues, government procurement, intellectual property, labor conditions, sanitary and phytosanitary standards
for agricultural products, technical barriers to trade, and telecommunications. Sources inside and outside of government say that President Ma’s allusion to a 10-year timeframe for Taiwan to join TPP derives from his vision for a “Golden Decade,” and does not necessarily imply a fixed target. “We will need time to liberalize our economy and deregulate,” says the BOFT’s Chang, “but if we can make it shorter [than 10 years], why not?” One inducement to accelerate the process is that after the existing TPP members have completed their negotiations, any newcomers will have to accept the package as is. It is unclear whether at that stage any flexibility will be available for new members to carve out certain exceptions or phase in liberalized terms over time. But whatever the timing, there is no doubt that TPP represents a vital goal for Taiwan. As President Ma said at the AmCham Annual General Meeting: “Think about the scenario 10 years from now if we’re still not a member of TPP. What would happen to Taiwan? That’s why we have no choice – we have to surge ahead.”
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s e e i n g ta i w a n
Marching with the Mazu Pilgrimage
T
housands of deities are worshiped in Taiwan's temples. Some are obscure and entirely local, while others have a strong following across Taiwan as well as on the Chinese mainland and in ethnic Chinese communities in Southeast Asia. Of the latter, none is more prominent than the goddess of the sea, Mazu (often spelled Matsu). Like many of the divine personalities revered by Taiwanese people, the faithful believe Mazu was once a human being. She is said to have been born into a family surnamed Lin in Meizhou, a fishing community in Fujian (the coastal Chinese province nearest Taiwan) on the 23rd day of the third lunar month, 960AD. Her parents gave her the name Mo-niang, meaning “silent maiden,” because she was an exceptionally peaceful baby who never cried. By her teens, Lin Mo-niang had a reputation for rainmaking, memorizing and reciting Buddhist and Confucian texts, healing the sick, and exorcising demons. At the age of 16, she saved her father and brothers when they were
caught in a tremendous storm while on a fishing expedition. According to one version of the legend, she slipped into a trance and projected herself out into the ocean to save them. On the ninth day of the ninth lunar month in 987, Mo-niang announced she was going to leave this world. But she did not die. Just as the Assumption of the Blessed Virgin Mary into Heaven
is part of the Catholic and Orthodox forms of Christianity, so Mazu's disciples believe the goddess was lifted bodily from a mountaintop to the heavens. The creed of Mazu spread over the following centuries. Migrants sailing from the mainland to Taiwan often carried effigies of Mazu with them to ensure a safe crossing. Revered icons of the godde s s accompanied bot h Koxinga, the warlord who evicted the Dutch from their colonies in Taiwan in 1662, and Shi Lang, the admiral who two decades later conquered the island for China's Qing empire. Over time, Mazu became much more than the patron saint of seafarers. She is said to have aided the Qing authorities when facing a massive rebellion in Taiwan in the 1780s, and to have protected Taiwan’s inhabitants during the Sino-French War of 188485. Nowadays, many Taiwanese who venture nowhere near the ocean seek her blessings in times of plenty and her aid in times of distress. Her eminence is made clear by one of her alternative names, Tianhou, “the Queen of
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s e e i n g ta i w a n Heaven.” Many of the 800-plus shrines dedicated to her around the Republic of China are called Tianhougong, “Queen of Heaven Temple.” Place names around the Republic of China reflect her influence. The remote Mazu Islands are named after her. Until the 1920s, Magong, the main city in the Penghu archipelago, bore a name which meant simply “Mazu temple.” The 400-year-old Tianhougong there is one of the country’s oldest and quaintest shrines to the sea goddess. Nowadays, if Mazu is synonymous with any one place in Taiwan, it is the small town of Dajia in the central Taiwan, now incorporated into Taichung City. Dajia’s most active place of worship is the Zhen Lan Temple (or Jenn Lann as the temple spells the name in English). Founded in 1732, it houses one of Taiwan’s most revered Mazu icons. The temple is also the starting and ending point of Taiwan’s largest annual pilgrimage. Each spring, just ahead of Mazu’s birthday, the icon embarks on a nine-day tour to scores of affiliated temples in Taichung and three nearby counties. More than a million devotees accompany the icon, eager to show their loyalty and hoping to receive the deity’s blessings. Some say the pilgrimage is the largest regular religious event in the world outside India. Diehards walk the entire distance of more than 300 kilometers, and there are those who complete the pilgrimage year in, year out. Such disciples, who sleep in temple dormitories and courtyards along the way, are called xiāngkè in Mandarin, meaning “incense guests.”
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s e e i n g ta i w a n In Taiwan, joss sticks are held by those praying in temples or before ancestor shrines, and the scent of incense is ever present in houses of worship. Folk religion in Taiwan is incredibly colorful and – thanks to the liberal use of gongs, drums, and firecrackers – often very noisy. Entertainment laid on for gods and goddesses is enjoyed by everyone in the community. Taiwanese opera and traditional puppet shows are often held in temple courtyards, while zhentou troupes perform lion dances, dragon dances, and stilt-walking stunts. The Dajia pilgrimage has always included such elements, but in recent years it has evolved into a full-fledged, government-backed extravaganza. For tourists, the International Dajia Mazu Sightseeing and Culture Festival is an opportunity to enjoy all kinds of cultural performances, as well as a chance to witness the earthy, good-natured fervor of the goddess’s supporters. For many participants, the highlight of the pilgrimage is having the ornate wooden palanquin that bears Mazu pass over them as they prostrate themselves on the road. This is thought to bring good luck to all who do it, so the single-file line of those awaiting the goddess is often a kilometer long. In a melding of tradition and technology that is typical of Taiwan, the palanquin carries a GPS device linked 24/7 to the Jenn Lann Temple’s website. This enables devotees to track the goddess’s precise location in real time, wherever in the world they may be. It is also useful for tourists who want to catch up with the parade and experience Mazu
fervor for just a few hours. When the palanquin and accompanying pilgrims reach Fengtian Temple in Chiayi County’s Xingang Township (usually on day four), they turn around and begin heading north, back to Dajia. Fengtian Temple has been the southern terminal of the pilgrimage since the late 1980s; before then, the parade turned around at Chaotian Temple in Yunlin County’s Beigang Township, a religious center that is also worth visiting. One of the oldest heirlooms in the Chaotian Temple is an iron nail lodged in a timeworn granite step. It has been there for more than 200 years, ever since a young man surnamed Xiao begged Mazu to send him a sign that his parents had survived a voyage across the treacherous Taiwan Strait. Xiao prayed to the goddess before hammering the nail; when it penetrated the stone, Xiao knew his mother and father were safe. The history of Mazu worship is full of stories like this, episodes where the deity has given her followers hope and courage. For more details about the festival and other information useful to visitors, go to the Tourism Bureau’s website (http://www.taiwan.net.tw) or call the 24-hour tourist information hotline (0800-011-765, toll free within the ROC).
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