Taiwan Business Topics Feb. 2014: A New Impetus for Biotech by AmCham Taipei

www.amcham.com.tw THE AMERICAN CHAMBER OF COMMERCE IN TAIPEI

Taiwan Business

Topics

TAIWAN BUSINESS TOPICS February 2014 | Vol. 44 | Issue 2

NEW IMPETUS FOR BIOTECH 生技產業的新動能 Cover story (p. 21) China’s reforms (p. 35)

中華郵政北台字第號執照登記為雜誌交寄 5000 2_2014_Cover.indd 1

2014 Business Climate Survey (p. 39)

February 2014 | Vol. 44 | Issue 2

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CONTENTS NEWS AND VIEWS

6 Editorial fE b rua ry 2 0 1 4 vOlumE 44, N umbEr 2 一○三年二月號

Making 2014 a Breakthrough Year

讓2014年成為突破年

ality; Kudos to the Regulator

保護原廠藥品專利權；化學機密的考驗；恭喜金管會一年經營有成 By Don Shapiro

15 Commentary Publisher

President Ma Ying-jeou’s New Year’s Address on the economy.

發行人

Andrea Wu

吳王小珍

Editor-in-Chief

總編輯

Don Shapiro

沙蕩美術主任 / 後製統籌

Art Director/ Production Coordinator

Katia Chen

陳國梅

Manager, Publications Sales & Marketing

廣告行銷經理

Caroline Lee

李佳紋

Translation

翻譯

Yichun Chen, Sonia Tsai 陳宜君, 蔡函岑

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

7 Taiwan Briefs By Jane Rickards

11 Issues

Protecting Patented Pharmaceuticals; A Test for Chemical Confidenti-

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 Taiwan Business TOPICS is a publication of the American Chamber of Commerce in Taipei, ROC. Contents are independent of and do not

COVER SECTION

necessarily reflect the views of the Officers, Board of Governors, Supervisors or members. © Copyright 2014 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108台北市萬華區長沙街二段66號發行日期：中華民國一○三年二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/ Thomas Fann Vice Chairmen/ Scott Meikle / William J. Farrell Treasurer: Cosmas Lu Secretary: Fupei Wang 2013-2014 Governors: Thomas Fann, William Farrell, Ajit Nayak, Neal Stovicek, Stephen Tan, Fupei Wang, Bill Wiseman. 2014-2015 Governors: William E. Bryson Jr., Sean Chao, Rodney Van Dooren, Douglas Klein, Cosmas Lu, Scott Meikle, Dan Silver, Ken Wu.

2014 Supervisors: Anita Chen, Midee Chen, Joseph Lin, Louis Ruggiere, Vincent Shih. COMMITTEES: Agro-Chemical/ Melody Wang; Asset Management/ Christine Jih, Derek Yung; Banking/ Victor Kuan; Capital Markets/ Miranda Liaw, C.P. Liu, Shirley Tsai; Chemical Manufacturers/ John Tsai, Michael Wong; CSR/ Lume Liao, Fupei Wang; Customs & International Trade/ Stephen Tan; Education & Training/ Robert Lin, William Zyzo; Greater China Business/ Helen Chou, Cosmas Lu; Human Resources/ Richard Lin, Seraphim Mar; Infrastructure/ L.C. Chen, Paul Lee; Insurance/ Joseph Day, Dan Ting, Lee Wood; Intellectual Property & Licensing/ Jason Chen, Peter Dernbach, Jeffrey Harris, Vincent Shih; Manufacturing/ Thomas Fan, Hans Huang; Marketing & Distribution/ Wei Hsiang, Gordon Stewart; Medical Devices/ Susan Chang, Tse-Mau Ng, Dan Silver; Pharmaceutical/ Margaret E. Driscoll, David Lin, Jun Hong Park; Private Equity/ William Bryson; Public Health/ Jeffrey Chen, Dennis Lin; Real Estate/ Tony Chao; Retail/ Prudence Jang, Douglas Klein, Ajit Nayak; Sustainable Development/ Kenny Jeng, Kernel Wang; Tax/ Cheli Liaw, Jenny Lin, Josephine Peng; Technology/ Revital Golan, Scott Meikle, Jeanne Wang; Telecommunications & Media/ Thomas Ee, Joanne Tsai, Ken Wu; Transportation/ Michael Chu; Travel & Tourism/ Anita Chen, Pauline Leung, Achim v. Hake.

21 New Impetus for Biotech

台灣汽車產業總體檢 For years, biotechnology has been talked about as a potential new source of vitality for the Taiwan economy as the information-technology sector matures. Until recently the industry’s progress has been slow, but new developments – including three major investments and a host of products in the pipeline – are raising hopes that the time may be coming for Taiwan biotech to flourish.

27 Biochips for a Better Diagnosis 30 Making it through the pipelines

By Jens Kastner

taiwan business topics • february 2014

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fe bruary 2014 • Volume 44 n umb er 2

iSSuE SPONSOr

TAIWAN BUSINESS

32 A Widening Role for Credit Cards Taiwanese consumers are spending more on their credit cards and using them for a greater variety of transactions. By Philip Liu

BEHIND THE NEWS

35 Evaluating China’s Planned Economic Reforms The Beijing leadership seems determined to put the economy on a sounder longterm footing. Given the strong crossStrait trade and investment connection, that is largely good news for Taiwan. By Jane Rickards

SPECIAL REPORT

39 AmCham Taipei's 2014 Business Climate Survey: Summary of Results

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Making 2014 a Breakthrough Year

aiwan Business TOPICS does not usually reprint speeches by government leaders, but the recent address delivered by President Ma Ying-jeou on January 1 was so noteworthy that this issue of the magazine devotes five pages to it. The speech is a clarion call for the Taiwan government to carry out far-reaching economic reforms to burnish Taiwan’s attractiveness as a center for international trade and investment, as well as an appeal for broad public recognition that such liberalization is the only way to rebuild this country’s economic competitiveness and assure future prosperity. Ma wholeheartedly embraced entrance into key multinational free trade agreements such as the U.S.-led Trans-Pacific Partnership (TPP) and Regional Comprehensive Economic Partnership (RCEP) centering on ASEAN and China as Taiwan’s “unswerving goals.” Even more encouraging have been the signs that this stated policy direction is not mere rhetoric but is being translated into concrete action. In late December, Premier Jiang Yi-huah instructed each cabinet ministry to scrutinize the laws and regulations under its jurisdiction to identify any that appear to deviate from standard international practice – and as such could present obstacles to Taiwan’s membership in TPP or RCEP. The ministries were given until mid-year to report back on their findings and suggest solutions. Further, the Council for Economic Planning and Development (CEPD) – now newly upgraded to form the National Development Council (NDC) – is already actively at work trying to resolve several specific issues that have aroused the concern of major trading partners. The government’s initiative in establishing Free Economic Pilot Zones is another indication of its seriousness in seeking

innovative new directions for the Taiwan economy, and the recent announcement lifting restrictions on the import of Canadian beef demonstrates a desire to underscore Taiwan’s commitment to free trade and to strengthen trade relations with TPP negotiating parties. With the next Trade and Investment Framework Agreement (TIFA) Council meeting scheduled for this spring in Washington, this trend offers hope that additional advances can also be expected in economic relations with the United States. The challenge for Taiwan is not just to institute improvements, but to keep pace with its rapidly progressing competitors within the region. As reported on in another article in this issue of Taiwan Business TOPICS, China too is in the process of undertaking major restructuring to free up its economy. In addition, Japan seems determined to use its membership in TPP to reinvent its economy and restore its past dynamism. Korea, which already has signed FTAs with both the United States and the European Union, has made known its readiness to file for TPP membership when a second round is opened. At the close of his New Year’s Address, President Ma announced the formation of a task force, which he himself will help oversee, to spur the drive for reform within government – plus a promotion committee, led by former Vice President Vincent Siew and composed of members from the private sector, to build consensus within society on the crucial importance of Taiwan’s participation in regional economic integration. AmCham fully supports these developments and offers its cooperation in any way possible. We firmly believe the proposed efforts could make 2014 a breakthrough year for the Taiwan economy.

讓2014年成為突破年

本

刊通常不會轉載政府領導人的演說內容，不過馬英

求有新界維新方向的另一表徵，而且最近宣布解除加拿大牛

九總統最近發表的元旦文告非常值得注意，因此本期

肉進口限制，展現台灣對自由貿易的大力支持與承諾，並強

有五頁篇幅的報導。該篇文告大聲疾呼台灣政府進行

化和TPP會員國的貿易關係。下一次貿易暨投資架構協定會

廣泛的經濟改革，以擦亮台灣的國際貿易和投資中心招牌，

議（TIFA Council）預定今春於華府舉行，此趨勢顯示台美

同時還呼籲民眾廣泛體認，自由化是重建台灣經濟競爭力和

經濟關係亦可望有進一步進展。

確保未來繁榮的唯一途徑。馬英九總統全心全力主張加入重

台灣所面臨的挑戰並不僅止於著手改善，還要跟上亞洲區

要的跨國自由貿易協定，例如美國主導的跨太平洋夥伴協議

競爭對手的迅速進展腳步。誠如本刊本期另一篇報導所言，

（TPP），以及以東協（ASEAN）和中國為核心的區域全面

中國也正在推動開放經濟的重大改革過程。此外，日本似乎

經濟夥伴關係（RCEP），作為台灣「堅定不移的目標」。

決心利用其TPP成員國的優勢改造經濟，恢復往日動能。已

更令人振奮的是跡象顯示，文告中談到的政策方向不僅止於口號，而是正轉化為具體行動。行政院長江宜樺在12月

和美國、歐盟簽暑自由貿易協定（FTA）的南韓則已表明，準備在TPP開放第二波談判時申請加入。

下旬指示所有內閣部會，仔細檢討各自管轄範圍內的法律規

馬總統在元旦文告的結語中宣布成立由他本人協助監督的

章，找出所有會構成台灣加入TPP或RCEP的障礙並悖離國

特別小組，在政府內部快馬加鞭推動改革，另外還要成立由

際慣例的法條。各部會須在今年中回報檢討結果與建議解決

前副總統蕭萬長領導的民間推動委員會，針對台灣參與區域

方案。此外，經建會（現已整併為國家發展委員會）已積極

經濟整合的重要意義，建立社會共識。本商會全力支持前述

著手嘗試解決數項引起主要貿易夥伴關切的特定問題。

發展，並儘可能提供合作。我們堅信，馬總統提出的種種計

台灣政府計畫建立自由經濟示範區，是為台灣經濟認真尋

畫會讓2014年成為台灣經濟的突破年。

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— by jane ri ckards —

advanced economies. But economists note that Taiwan’s lackluster economic growth of 1.74% in 2013 was not due entirely to the economic troubles in Western markets. Another factor has been an erosion of Taiwan’s export competitiveness as nations like Malaysia and China find ways to do what Taiwan does more cheaply, while the island has failed to upgrade its industries. In its latest GDP forecasts offered at the end of November, the Directorate General of Budget, Accounting and Statistics (DGBAS) forecast 2.59% growth for the Taiwan economy in 2014. That fell well below median estimates in a Bloomberg survey in early January, which predicted that Taiwan’s 2014 growth would accelerate to 3.45% . Although the DGBAS noted the growing momentum in the world economy, it stressed that Taiwan’s growth would be constrained by the competition from other manufacturing sources. Nevertheless, there are signs that exports are picking up, despite December’s export value of US$25.59 billion, down 1.9% year-on-year, which continued the up-and-down pattern that plagued most of 2013. But imports,

MACROECONOMICS GUarDeD OPtiMisM “Optimism is in the air,” International Monetary Fund managing director Christine Lagarde declared in midJanuary. “The deep freeze is behind and the horizon is brighter.” Accordingly, the IMF a week later raised its global growth forecast for the first time in nearly two years, predicting 3.7% growth for this year, up from 3% in 2013. Stocks across Asia rose on the news. The IMF said economic headwinds were fading, allowing advanced economies to take over from emerging markets in leading world growth. The IMF was especially optimistic about the U.S. economy, but noted that global growth could be weak and uneven in places, citing risks of deflation, especially in the Eurozone. The outlook for developing markets was viewed as unchanged due to a weak outlook for consumption. On the surface, the improved prospects for the developed world would seem to be good news for Taiwan, whose economy relies heavily on the export of high-tech items to the

Taiwan's JanuaRY To decembeR TRade FiguRes (YeaR on YeaR comPaRison)

Japan

ASEAN

TOTAL

26.9

2012

2013

2012

2013

21 27.15

23 23.9

24.3 23.1

2012

2013

2012

2013

Imports

2012

2013

Europe

19.8 27.6

U.S.

224.5 252.7

35.8 15.87

2013

227 250.2

40.2 15.6

36.6

2012

36.2

98.2

99.2

HK/China

Exports

Unit: US$BN Source: BOFT

Taiwan sTock exchange index & value

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

8750

135

8500

120

8250

105

8000

7750

7500

7250

7000

6750

6500

December data source: tw se

Unit: nt$ billion

which reflect investments in capital equipment in an indication companies may be preparing for improvement in the economy, rose 10.1% to US$24.18 billion for a favorable trade balance of US$1.41 billion. Export orders in December, a sign of shipments to come in the next few months, were a healthy US$42.31 billion, up 7.4% from a year ago in an upward trend that has lasted half a year. Ministry of Economic Affairs officials said demand for electronics and ICT products, particularly handset components such as chip sets and camera lenses, fueled the drive as tech companies launched new products. Overall export orders for the full year of 2013 rose 0.4% to a record high of US$442.9 billion, up from US$441 billion in 2012. Unemployment remained steady and low in December, decreasing 0.08 percentage points to 4.08% (seasonally adjusted it fell 0.03 percentage points to 4.12%). The Central Bank in December kept the key discount rate on 10-day loans to banks at 1.875%, most likely because of DGBAS’s low inflation forecast for 2014 (a 1.21% rise in the consumer price index) and the continued need to

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ANGRY MOTORISTS — As part of a protest against the Far Eastern Toll Collection Company’s handling of the eTag program, demonstrators attach stickers to their cars’ back windows. photo : cna

boost growth. The rate has remained unchanged since June 2011.

CROSS-STRAIT CHina iMPOses aDiZ in east CHina sea In a move that stoked fears that China’s economic rise could provoke a regional confrontation, China declared an Air Defense Identification Zone (ADIZ) in the East China Sea in November. The Chinese ADIZ covers airspace over territory claimed by China, Japan, South Korea and Taiwan, including contested islets known as the Senkakus to the Japanese and Diaoyutai to Taiwan. Beijing warned that intruding aircraft must identify themselves or be subject to emergency military measures. In early December, a nervous South Korea extended its ADIZ to partially overlap with that of China's, and the U.S. Navy announced that an American guided missile cruiser sail-

ing in international waters in the South China Sea was forced to take evasive action to avoid colliding with a Chinese warship, the most significant maritime incident between the two superpowers since 2009.

LawMaKers CritiCiZe Ma’s resPOnse Just hours after China’s announcement, President Ma Ying-jeou called an emergency meeting of the National Security Council attended by several key ministers. The timing of the meeting and the turnout indicated the government was extremely worried, analysts said. But publicly at least, the council did little more than issue a statement expressing a “high level of concern” and urging the parties involved to resolve their differences through peaceful dialogue – although it did add that Taiwan would continue to stand firmly behind its claims to the Diaoyutai, and that Taiwan’s military would take any necessary action to protect Taiwan’s air space

that fell within China’s declared ADIZ. Analysts said the Ma administration, caught between its need to maintain warm business relations with China and the need for American military protection, is diplomatically hamstrung. Taiwan is in no position to upset Japan and implicitly act against American interests by aggressively restating its claims to the Diaoyutai, while challenging China over the ADIZ might jeopardize growing cross-Strait ties that Ma sees as important for revitalizing Taiwan’s economy. The opposition Democratic Progressive Party lambasted the president for failing to condemn or oppose the ADIZ, noting that other Asian countries had done so. Even legislators from his own party expressed concern. Legislative caucus leaders, including those of the Kuomintang, approved a non-binding resolution demanding that the Ma administration lodge an official protest with China. In response, Ma said Taiwan would express its serious concerns to Beijing. In midJanuary, Ma told a visiting group from

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the American Enterprise Institute that his government had not ruled out the possibility of negotiating with Beijing over the ADIZ.

CHina iMPOses fisHinG rULes On sOUtH CHina sea Adding to tensions, China in early January announced new fishing rules for large swaths of the South China Sea that Beijing claims are under its jurisdiction, but which are also claimed in part by several other Asian nations including Taiwan. Beijing demanded that fishing boat operators first get permission to enter the area from the Hainan provincial authorities or face confiscation of their fishing equipment plus hefty fines. A U.S. State Department spokeswoman called this announcement “provocative and potentially dangerous,” and the Philippines pledged to defy the Chinese r e g u l a t i o n s . Ta i w a n ’s M i n i s t r y o f Foreign Affairs also said Taiwan did not recognize the new rules. Officials added that Taiwanese fishermen were operating as normal.

DOMESTIC COntrOVersY erUPts OVer e-taG sYsteM fLaws A new e-tag system launched in early January that charges motorists for using Taiwan’s freeways according to the distance driven overcharged many drivers, with the resulting public outrage putting the Ministry of Transportation and Communications (MOTC) on the defensive. It also hurt the image of the Far Eastern Group, whose subsidiary, the Far Eastern Electronic Toll Collection Co., manages the system for the government as a build-operate-transfer project. An estimated 5.2 million motorists registered with the system, whereby motorists place eTag stickers on their windshields so that scanners on freeway gantries can automatically charge them for the distance they travel. Besides the problem

of overcharging, the computer systems by which e-tag holders can check the amount of money in their account appeared to be unstable, and calls to customer service often went unanswered. Under fire from lawmakers, the MOTC reprimanded the freeway bureau chief, but that did not deter scores of angry protesters gathering outside Far Eastern Department Stores in mid-January. Later, the government announced it would impose stricter oversight on the toll collection company and threatened to slap it with large daily fines if it failed to improve service quality.

COOKinG OiL MOGUL Gets 16-Year sentenCe The head of a prominent Taiwanese cooking oil company was sentenced to 16 years’ imprisonment in mid-January and fined NT$50 million (US$1.67 million) by a Changhua County court after being convicted on fraud and mislabeling charges. Kao Chen-li, chairman of the Changchi Foodstuff Factory, had been caught adulterating olive oil with copper chlorophyllin, a banned coloring agent, and cottonseed oil. Prosecutors found that the tainted oil products had been supplied to some major Taiwanese manufactur-

ers and retailers, including Wei Chuan Foods Corp., whose parent company owns the popular Master Kong instant noodle brand. Coming on the heels of other food scares in recent years, the incident caused rising public concern about food safety.

I N T E R N AT I O N A L N.Y. TIMES Lists taiwan as a tOP traVeL DestinatiOn In a boost for Taiwan’s travel industry, Taiwan was listed as number 11 in a New York Times feature introducing “52 Places to Visit in 2014.” Saying “the traveler who wants to do it all should visit Taiwan,” the paper mentioned Taiwan’s easy-to-navigate public transport system that links a cosmopolitan capital with “a bounty of man-made and natural wonders.” It cited such attractions as vibrant street markets, a worldclass art scene, and 17 scenic biking trails, and described Orchid Island as a “diving paradise.”

Ma annOUnCes traVeL PLans fOr Late JanUarY President Ma announced plans to visit diplomatic allies in Africa and Latin America at the end of January, saying

TOURISM RECOGNITION — The beauty of Orchid Island was cited among the many attributes that led the new York times to include Taiwan in its list of “52 Places to Visit in 2014.”. photo : tourism bureau

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contracts with Apple and were legally allowed to set their own prices.

JOint-VentUre bUDGet airLine estabLisHeD Singapore budget c a r r i e r Ti g e r a i r a n d Taiwan’s China Airlines in mid-December announced they would jointly set up a new Burkina Faso President Blaise Compaore greets Presino-frills airline, Tigerair dent Ma Ying-jeou on the second leg of Ma’s threecountry overseas trip. Ta i w a n , i n o r d e r t o photo : cna tap into demand for budget travel in Korea, he would visit the African nations of Japan, and Taiwan. Tigerair Taiwan will Burkina Faso and Sao Tome and Princhave paid-up capital of NT$2 billion ipe before traveling to Honduras to (US$66.7 million), with the Singaporeattend the inauguration ceremony of based carrier holding a 10% share and president-elect Juan Orlando HernanChina Airlines 90%. The first budget dez. Sao Tome and Principle is the only air venture for China Airlines, Tigerair nation among Taiwan’s 22 allies that Ma Taiwan is expected to become operahas not yet visited. The trip comes after tional this year. Gambia embarrassingly cut off official nOMUra tO aCQUire inG asset ties last year.

ManaGeMent arM

BUSINESS aPPLe fineD fOr PriCe restriCtiOns T h e F a i r Tr a d e C o m m i s s i o n (FTC) fined Apple NT$20 million (US$666,700) for restricting the prices charged by local telecoms carriers for their iPhone contracts. It was the first time anywhere in the world for Apple to be fined for such practices. The FTC said Apple Asia violated Taiwanese free-trade laws by requiring Taiwanese carriers to obtain its permission before setting contract prices on iPhones. It also said Apple Asia asked local carriers to alter service contract prices and subsidy prices. The regulator argued that this practice stifled fair competition as the three carriers involved – Chunghwa Telecom, Taiwan Mobile, and FarEasTone Telecommunications – had all obtained reseller rights under their

Nomura Asset Management said in mid-January that it has agreed to acquire the Taiwan-based ING Securities and Investment Trust Co., the local asset management arm of the ING Group, Reuters reported. The deal will make Nomura the first Japanese asset

management firm to operate in this market. Nomura Asset, a unit of Japan’s top brokerage, Nomura Holdings Inc., will partner with an investment group led by Ashwin Mehta, a former chief executive of ING Securities and Investment Trust. The purchase price was undisclosed.

COrninG brinGinG new teCHnOLOGY tO taiwan American glass substrate maker Corning in early January said it would introduce a new manufacturing process in Taiwan for molding its shatter-resistant Gorilla Glass, often used in smartphone covers, into 3D shapes. Corning is collaborating with a Taiwanese company, G-Tech Optoeletronics Corp., to establish vertically-integrated operations on the island. The hope is to commercialize the Gorilla glass 3D products in 2014. Apple and Samsung are among Corning’s Gorilla Glass customers. James R Steiner, senior vice president and general manager of Corning Specialty Materials, said that with the help of G-Tech Optoelectronics’ help, “we can now take Gorilla Glass all the way from flat sheet to a finished 3D-shaped product in Asia, expediting turnaround times and minimizing logistical complexity.” The project reflects increasing market demand for more stylish shapes in smartphone covers.

economic indicaToRs Unit: US$ billion Current Account Balance (2013 Q3) Foreign Trade Balance (Dec.) Foreign Trade Balance (Jan.-Dec.) New Export Orders (Dec.) Foreign Exchange Reserves (end Dec.) Unemployment (Nov.) Discount Rate (Jan.) Economic Growth Rate 2013 (Q3)p Annual Change in Industrial Output (Nov.)p Annual Change in Industrial Output (Jan.-Nov.)p Annual Change in Consumer Price Index (Nov.) Annual Change in Consumer Price Index (Jan.-Nov.) note: p=preliminary

14.91 2.2 35.4 42.31 416.8

Year Earlier 12.30 4.10 30.70 40.0 403.2

4.16% 1.875% 1.66% -0.12% 0.39% 0.67% 0.83%

4.27% 1.875% 1.35% 5.96% -1.32% 1.59% 1.96%

sources: moea, dG bas, cbc, boft

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Issues

Protecting Patented Pharmaceuticals Generics now often receive approval even before the patent on the original drug expires.

entral to the intellectual property protection of pharmaceutical products in the United States is the Food and Drug Administration’s publication of Approved Drug Products with Therapeutic Equivalence Evaluations – a hefty volume, now in its 33rd annual edition, better known by its nickname of the Orange Book. Also searchable online, the database lists drugs covered by patents in one section and generics in another. In what is termed a patent linkage system, the FDA as a matter of standard operating procedure refers to the Orange Book to check whether a given drug is still covered by a patent before approving an application for a generic version of the product. If a potential infringement is discovered, the patent holder is notified, and if the owner of the patent on the original drug lodges a complaint, the FDA will refrain from approving the generic until the legal situation is clarified, usually through the courts. Besides the United States, such a patent linkage mechanism has been adopted by many countries around the world, in Asia including Japan, Korea, Singapore and even China. But so far Taiwan has been an exception. Each year since 2006, the Pharmaceutical Committee submission to AmCham Taipei’s Taiwan White Paper has called on the government to strengthen IPR protection by adopting patent linkage. Little progress has been made on this front, however, in part because it would necessitate effective cross-agency coordination – always a challenge – between the Taiwan Intellectual Property Office (TIPO) under the Ministry of Economic Affairs, which has responsibility for granting patents, and the Taiwan Food and Drug Administration (TFDA) under the Ministry of Health and Welfare (MOHW), where the responsibility resides for granting drug licenses. Pharmaceutical Committee members are hopeful that the authorities may now be willing to reconsider this suggestion. Given Taiwan’s declared determination to enter into more international free-trade agreements, including the nascent multinational TransPacific Partnership, it will be necessary for Taiwan to satisfy major trading partners about the completeness of its IPR regime. In that respect, the Committee considered it a positive sign that during a recent meeting with an AmCham delegation, MOHW officials requested additional information about how the Orange Book system works in the United States. During that meeting, the Committee also explained the serious damage that lack of patent linkage can cause for producers of original drugs. A recent industry survey, for example, found that out of 65 generic drugs that received product approval in a given period, for 22 of the products the patent on the original drug had not yet expired. In

保護原廠藥品專利權原廠藥的專利尚未到期，學名藥卻時常能夠批准上市。

美

國食品藥物管理署（F D A）每年出版厚厚的一本「同等療效核准藥品評估」，一般人稱之為「橘皮書」，現在已經出到第33版。美國對藥品智慧財產權的保護，主要就是靠它。這本書也有網路版，資料庫分為兩部分，其中一部分列出專利藥品，另一部分是學名藥。 FDA有個稱為專利連結系統的標準作業模式，就是在批准任何一種學名藥之前，先要查閱橘皮書，看看這個藥是否仍受專利保護。若發現可能有侵權的問題，專利的持有者就會接到通知。如果這個持有者表達異議，FDA就不會核准這項學名藥，直到法律爭議獲得解決。解決的方式，一般是打官司。除了美國之外，世上還有許多國家已採取這種專利連結機制，其中包括亞洲的日本、南韓、新加坡，甚至中國。但到目前，台灣還沒有這麼做。從2006年起，台北美國商會每年「台灣白皮書」當中由製藥委員會提供的部分，都呼籲台灣政府採納專利連結機制，以加強對智慧財產權的保護。但這方面進展十分有限，部分原因在於，如果要有進展，負責核准專利的經濟部智慧財產局與核發藥品許可的衛生福利部食品藥物管理署之間要有良好的溝通協調，而在台灣，跨部會協調始終是一項挑戰。製藥委員會的委員們期待，有關當局此刻或許願意重新考慮他們的建議。台灣宣示決心簽署更多國際自由貿易協定，包括仍在談判中的多邊跨太平洋夥伴協定，既然如此，台灣就需要在智財權保護措施方面做到徹底，以符合主要貿易夥伴的期待。在這方面，製藥委員會認為最近出現一個正面的跡象，那就是衛生福利部官員在與台北美國商會代表會面時，要求提供更多有關橘皮書制度如何在美國運作的資訊。在那次會面當中，製藥委員會並說明少了專利連結制度對原廠藥品製造商可能造成的嚴重損

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Issues some cases, the generic had even been granted a reimbursement price enabling it to enter the National Health Insurance system. Without the government engaging in patent linkage, the burden is on the maker of the original drug to constantly monitor market activity – which in effect means checking the formulary of every single hospital – and then bring a lawsuit against infringers. But the judicial process can be a drawn-out affair. In 2012, it took about seven months on average for cases to receive a verdict in the Intellectual Property Court, and in 26% of the cases the time was more than one year. In the meantime, the infringing product is able to remain on the market, undermining the business of the originator. Although the pharmaceutical industry also faces some additional IPR problems in Taiwan, progress in resolving the patent linkage issue would go a long way in demonstrating Taiwan’s sincerity about assuring patent protection for drugs sold in this market. —– By Don Shapiro

A Test for Chemical Confidentiality Industry members are awaiting a draft of new regulations to see how well proprietary information will be protected in this market.

s often happens with passage of a “mother law,” promulgation last December of an amended Toxic Chemical Substances Control Act (TCSCA) left many details still undetermined pending the issuance of implementation regulations – in this case by the Environmental Protection Administration (EPA). A draft of those regulations is expected to be released for public comment this spring before a final version is announced. Under the Act, chemical companies operating in Taiwan will be required to register their products – whether manufactured in this country or imported – with the EPA, specifying the chemical substances they contain. Complicating the situation is that another Cabinet-level government department, the Council for Labor Affairs (CLA), which is responsible for industrial health and safety conditions, also requires chemical-product registration. In fact, the CLA is currently in the process of creating a revised system of New Chemical Nominations (NCN) to add to its Existing Chemical Nominations (ECN). During internal discussion, AmCham Taipei’s Chemical Manufacturers Committee (CMC) identified several potential concerns regarding these developments: Will the Taiwan regulations be in line with global standards to avoid undue compliance burdens for international companies? Will the EPA and CLA registration 12

害。例如最近一項業界調查顯示，在一定期間內獲得許可的65種學名藥當中，有22種的原廠藥專利尚未到期，其中有些學名藥甚至已核定健保藥費，可以用於健保體系。政府若不採納專利連結制度，原廠藥品製造商只能自己持續監控市場─這表示得調查每一家醫院所開的藥品，然後對侵權廠商採取法律行動。但官司可能拖很久。2012年，智慧財產法院所審理的案子平均要七個月才有裁定；有26%的案子拖到一年以上才有結果。在法院審理的同時，涉嫌侵犯智財權的藥品可以繼續販售，跟專利藥品搶生意。藥品製造商在台灣還面臨其他侵犯智財權的問題，但專利連結的問題如果能有進展，將可有效展現台灣確保藥品專利權在本地市場不受侵犯的誠意。 — 撰文／沙蕩

化學機密的考驗去年12月公布的毒性化學物質管理法修正條文，出現任何「母法」通過時常會發生的狀況—在環保署發布施行細則前，許多條文細節仍然懸而未決。施行細則草案預定在今春公告公開徵求意見後，頒布最終版本。

根

據該法，在台營運的化學製品業者須向環保署登記產品（不論是在台製造或進口），具體說明其所含化學物質。同樣隸屬行政院的勞委會（負責把關產業勞工的衛生與安全條件）也要求登記化學產品，令情況更加複雜。其實勞委會正致力修訂其新化學物質提報系統，以加入既有化學物質提報系統中。台北市美國商會化學製造商委員會進行內部討論時，發現有關前述發展的數項潛在問題：台灣的規定是否符合國際標準，以免對國際業者造成過度負擔？環保署和勞委會的登記規定是否經過密切協調，讓業者能節省時間人力，在同一資料庫向雙方提出申報？產品登錄系統是否有充足的機密商業資訊保護機制，以減少業者對營業秘密外洩的疑慮？為了協助業者向台灣當局溝通前述問題，化學製造商委員會成立特別工作小組，並和兩個具有類似宗旨的台灣組織結盟：一是向整個台灣化學製品業宣導最佳執業常規的中華民國化學工業責任照顧協會（TRCA），二是代表大量使用化學製品的高科技產業業者的國際半導體設備材料產業協會台灣委員會（SEMI Taiwan）。此種結盟模式

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Issues requirements be closely coordinated so that industry could save time and manpower by filing to both from the same database? Will sufficient protection of confidential business information be built into the product registration system to ease companies’ worries about the leakage of trade secrets? To help communicate those concerns to the authorities, CMC established a special working group. And in what could be a useful model for advocacy activity by other Chamber committees, the working group forged an alliance with two other local organizations with similar aims: the Taiwan Responsible Care Association (TRCA), which promotes best practices throughout the domestic chemical industry, and SEMI Taiwan, which represents companies in various high-tech sectors that are high-volume users of chemicals. “Each platform is working on its own, leveraging the resources at its disposal, but at the same time we’ve been trying to align our messages to eliminate any possible confusion,” says Andy Tuan, who has headed the CMC working group. The three organizations also agreed on a division of labor. Besides integrating the views of AmCham member companies, CMC has focused on liaison with U.S.-related organizations such as the Washington-based American Chemistry Council and the U.S. government through the American Institute in Taiwan. TRCA has mobilized support among domestic manufacturers, as well as non-U.S. foreign-invested companies, while SEMI – through its Environmental, Health and Safety Committee – is integrating the response from the chemical-consuming industrial sectors. Another key organization in this effort is the Safety & Health Technology Center (SAHTECH) in Hsinchu, a spin-off from the Industrial Techology Research Institute (ITRI). SAHTECH is wellpositioned to help resolve some of the outstanding issues, as it serves as a consultant to both the EPA and CLA. AmCham also provided an opportunity for an airing of the chemical producers’ concerns when CMC representatives were included in a recent Chamber delegation that met with EPA Minister Stephen Shen. Although the CMC regards the meeting as a highly useful exchange of views, a paramount issue continues to be how the safeguarding of proprietary information will be handled in the upcoming draft regulations to prevent public disclosure. Taiwan’s track record on this score has not been reassuring. The current ECN system does contain a mechanism for manufacturers to raise a confidentiality claim, but industry has found that gaining acceptance of these claims has been more difficult than in other markets. Of the 79,000 chemical substances currently in Taiwan’s data inventory, it is understood that confidentiality has been granted to less than 1%. Comparable figures in some other countries are 9% in Korea, 12% in the Philippines, and 21% in the United States (where companies can make self-certification). In an interdependent world, if confidentiality cannot be assured in any one place, it is assured nowhere. Unless the intellectual property can be securely protected, companies will refrain from introducing certain innovative new products in this market – to the detriment not only of the chemical producers but of their customers in such industries as electronics, ICT, automobiles, textiles, iron and steel, machinery, and food processing. The forthcoming draft regulations will be scrutinized with that aspect chiefly in mind. —– By Don Shapiro

對本商會其它委員會進行倡導活動時也可能有所助益。領導化學製造商委員會特別工作小組的段定夫表示：「每個平台各自運作，自行掌控資源的運用，但同時也試圖讓我們所傳遞的訊息一致，避免任何可能的混淆。」這三個組織也在工作分配上達成共識。化學製造商委員會除了整合本商會會員企業的看法，還把焦點放在聯繫美國的相關團體，例如華府的美國化工協會（American Chemistry Council），並透過美國在台協會（AIT）接觸美國政府。TRCA動員本土製造業者和非美商外資企業的支持，SEMI則透過其環保、健康與安全委員會，整合使用化學品產業的回應。這項結盟行動還有另一個關鍵要角，就是位於新竹的安全衛生技術中心。該中心衍生自工業技術研究院，精確定位於協助解決一些重要議題，目前是環保署和勞委會的顧問機構。包括化學製造商委員會代表在內的本商會代表團，最近拜會環保署長沈世宏時，趁機轉達化學製品生產商的疑慮。化學製造商委員會認為這次拜會是大有助益的意見交流，但最主要的問題仍是即將公告的施行細則草案會如何規範對專有資訊的保護，以防機密被公開。台灣過去在此方面的紀錄無法令人放心。現行的既有化學物質提報系統確實包含讓製造商提出保密要求的機制，但業界發現，要讓台灣接受這些要求，比在其它市場更困難。在台灣資料目錄目前所列的7.9萬種化學物質中，獲准列為機密的不到1%。相較於其它國家，南韓有9%，菲律賓12%，准許業者自行認證的美國則有21%。在一個相互依賴的世界裡，倘若機密在某個地方不能受到保護，就無法在任何地方獲得保障。除非智慧財產能在某地受到安穩保護，否則業者就會避免在該市場推出某些創新的新產品──屆時受害的不只化學品製造商，連電子、資通訊、汽車、紡織、鋼鐵、機械和食品加工等產業的客戶也遭殃。由於此一主要考量，即將公告的細則草案將受到外界的仔細檢視。 — 撰文/ 沙蕩

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Issues

Kudos to the Regulator The AmCham/ECCT Joint Banking Committee commends the FSC for steps to improve the business environment.

ith the approach of the Chinese New Year, the banking institution members of AmCham Taipei and the European Chamber of Commerce in Taiwan (ECCT) reviewed the progress of the past year and took the opportunity to express appreciation to the regulator for its efforts to develop the financial services sector. In a statement, the AmCham/ECCT Joint Banking Committee commended the Financial Supervisory Commission (FSC) for having taken “concrete steps toward improving the banking regulatory environment and making it more competitive by accepting recommendations from the industry.” The statement was signed by the committee’s three co-chairs: Victor Kuan of Citibank, Godwin Chang of Societe Generale, and T.C. Lee of UBS. As an example of the favorable environment that the FSC has helped to create, the statement noted that “the recent progress and efforts made in cross-Strait financial co-operation have created an opportunity for Taiwan to become an important offshore RMB market in the Asia-Pacific region.” It mentioned that in recent years, the Joint Banking committee has been “continuously providing recommendations aimed at boosting Taiwan as an offshore RMB centre as well as promoting Formosa bonds in the international bond market.” The committee stated its belief that the “regulators’ continued efforts will better position Taiwan as an important financial center in Asia.” Further, the committee expressed its satisfaction that the “government has referred to the financial market development experiences of Hong Kong and Singapore in setting policy and broadening the business scope of the financial market through timely regulatory review and appropriate deregulation guided by the principles of stabilization and liberalization. In addition, the committee said it is “highly encouraged by and fully supports the government’s policy to include the financial services industry in the Free Economic Pilot Zones and expand the business scope of offshore banking units (OBUs).” The statement commended these measures as “helpful policies which could spur the repatriation of capital that is currently offshore,” and called this approach “essential to enhance the onshore financial market, which will lead to growth in terms of investment, job opportunities, and the economy.” “As responsible members of Taiwan’s Financial Industry,” the statement continued, the “Joint Banking committee members will keep providing recommendations and adopting international expertise and know-how, in order to benefit Taiwan corporations and consumers, and increase the competitiveness of the financial industry.” The committee also endorsed a recent suggestion by FSC Chairman William Tseng that members of the financial industry do more to promote Corporate Social Responsibility (CSR) activities so as to build a better living environment for the next generation. — By Don Shapiro 14

恭喜金管會一年經營有成美國商會暨歐洲商會聯合銀行委員會讚揚金管會努力改善產業環境

隨

著農曆新年的來臨，美國商會暨歐洲商會聯合銀行委員會檢視一年來的發展成果，特別感謝金管會對金融服務業發展的努力。美國商會暨歐洲商會聯合銀行委員會日前在一份公開聲明表示，“肯定金管會近來傾聽業界建言，對改善銀行業環境、開放金融政策與鬆綁法規所作的努力”，此聲明由三位美國商會暨歐洲商會聯合銀行委員會共同主席共同發表，他們分別是台灣花旗商業銀行董事長管國霖先生、法商法國興業銀行台灣區總經理張建西先生及瑞士商瑞士銀行台灣區總經理李天成先生。就金管會協助創造更好金融環境最重要的實例，該聲明指出，“特別是在兩岸業務以及金融合作的進展，為台灣的銀行業者帶來商機，使台灣成為亞太區重要之離岸人民幣市場”，近年來，美國商會暨歐洲商會聯合銀行委員會對於發展台灣成為離岸人民幣中心及打造寶島債市場成為國際性債券市場提供諸多建言。聯合銀行委員會也表示，“欣見主管機關鬆綁相關法規，強化台灣成為亞洲之重要金融市場的各項作為。” 另外，聯合銀行委員會對金管會致力於持續開放各項業務、擴大金融商品服務的範圍，並參酌香港、新加坡等區域金融中心發展金融市場之經驗，審視金融相關法令，適時鬆綁法規，以穩健、創新、開放的步調，持續推動金融自由化，深表認同。此聲明亦對政府將金融業納入「自由經濟示範區」之規劃表達充份支持。透過國際金融業務分行(OBU)相關業務的開放，將有助於吸引境外資金回流以發展台灣之財富管理產業，從而擴大本地金融市場規模，以促進投資、就業以及經濟成長。 “身為台灣金融業界盡責的成員”，聲明中繼續說到“美國商會暨歐洲商會聯合銀行委員會將持續提供政府相關建言，引進國際技術與專業化之服務，嘉惠台灣企業與消費者，並提升整體金融產業之競爭力”。此外，聯合銀行委員會也表示會積極響應金管會主委曾銘宗先生在與外國銀行負責人座談會中所提出的期許，鼓勵金融產業的會員善盡社會責任，為下一代營造更好的生活環境。 — 撰文/ 沙蕩

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COMMENTARY Excerpts from President Ma Ying-jeou’s New Year’s Day Address

Working in Unity to Bolster the Economy

or the past five years, I’ve used my New Year’s Day Address primarily to review the government's positive achievements during the preceding year. But it’s going to be a bit different this time. This year I’ll just be focusing on one key topic – what the people of this nation have done and will be doing to strengthen Taiwan’s economy! Looking back over the past year, we faced many challenges. We had some triumphs, and some setbacks. Overall, it was a rather difficult year. However, Taiwan did keep inflation and unemployment under better control than other developed countries, and the World Economic Forum last September ranked us 12th out of 148 economies in global competitiveness, up one place from the year before. Yet economic growth and real salary levels did not meet expectations. This is our most serious current challenge, and our most pressing task. I’m keenly aware that everyone is concerned about the economy, and that the state of the economy is the key to the well-being of the people. At the start of this new year, I promise all my fellow countrymen that this administration’s top priority is to do all that can be done to achieve economic growth. Our most important task, beyond carrying out bold adjustments and reforms, is to lead our vibrant private sector in an all-out campaign for economic growth, so that we can make this the year of Taiwan’s economic breakthrough! In the eight years before this administration took over in 2008, Taiwan ranked last among the four Asian tigers in terms of economic growth. However, during my first five years in office (2008–2012), annual economic growth averaged 3.07%, higher than the 1.9% growth of the global economy during the same period, and second only to Singapore among the four Asian tigers. We have thus made progress, but there is still room for improvement. We have fallen far behind many of our trade competitors in the pace of our industrial transformation and restructuring, and in the speed with which we have joined in regional economic integration.

President Ma started off the year with a call for economic liberalization and entry into multilateral free trade agreements. photo : cna

We cannot wait any longer. We cannot hesitate any more. We must take decisive action and overcome all difficulties to change our situation. With countries everywhere now striving mightily to bolster their economies, only by seizing the present can we secure our future.

For a palpable economic recovery The challenges that we encountered this year did not exclusively originate in Taiwan; they were also global in nature. However, as Winston Churchill once said, “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.” With the global economy in recession and difficulties facing us at every turn, the future may appear gloomy, but if we really think about it, we will see that change itself engenders new opportunities and hope. In response to the global trend toward liberalization, we must act quickly to adjust Taiwan’s industrial structure and amend outdated laws and regulations. Last August, we launched eight free economic pilot zones, including six seaports, one airport, and the Pingtung Agricultural Biotechnology Park. These pilot zones focus on development in five key areas: smart logistics; the international health industry; value-added agriculture; financial services;

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c o m m e n ta r y

and educational innovation. The core idea is to promote Taiwan’s further liberalization and internationalization. The total value of goods and services produced in the pilot zones is expected to quickly grow to more than NT$1 trillion in 2015. In promoting these pilot zones, the administration will select forward-looking economic activities with development potential that can also create manifold benefits. First, we will be trying out various institutional innovations in advance to eliminate obstacles to the cross-border movement of goods, capital, and people. For example, the output value of Taiwan's international health industry, which stood at NT$1.9 billion in 2008 when I took office, is expected to reach NT$13 billion this year, up by a factor of 6.8 during my presidency. The international health sector thus promises to play a key role as a model industry that enables our free economic pilot zones to spur diversified and forwardlooking development in Taiwan. We hope that the success of these pilot zones will foster sufficient confidence so that this concept can gradually be expanded to all of our cities and counties, turning all of Taiwan into a free economic island. Naturally, the work of reviewing laws and regulations goes on all the time. As of last September, in the five and a half years since I took office, this administration had amended 876 laws and regulations to ease restrictions. We hope to establish a regulatory environment in Taiwan that meets international standards. Of course, 876 is only a number. What matters is whether this easing will make foreign governments, as well as companies here and overseas, realize that we have made serious efforts to open up our markets and deregulate. Therefore, our efforts will continue until we have attained our goals. Also, to further stimulate the domestic economy during this new year, we must adopt other aggressive measures so that the government can spur increased private-sector investment. First, in the area of public investment, among the free economic pilot zones we are going to center our efforts on the Taoyuan International Airport Free Trade Zone. The convenience and international connectivity of the airport’s passenger and cargo transport and logistics services will attract the cluster development of industries in the vicinity of the airport. Central and local government investment in the area is expected to amount to NT$575 billion, which could generate NT$2.3 trillion in economic activity, NT$84 billion in tax revenues, and 260,000 employment opportunities. In Kaohsiung, we have completed phase-I expansion of the Intercontinental Container Terminal. We are building the Kaohsiung Maritime Cultural & Pop Music Center and the Kaohsiung Port and Cruise Service Center, and have

recently completed construction of the Kaohsiung Exhibition Center. These facilities are going to make Kaohsiung a shining star of world-class transport, tourism, and culture. In addition, this administration is further building out the mass rapid transit network to reduce driving times, increase productivity, improve air quality, and encourage people to relocate to suburban areas. Second, with respect to business startup activity, we will spur private investment by tapping into our financial markets and government-run funds. For example, we have launched a Program for Financial Support of Innovative Industries that utilizes the abundant resources of the capital markets to support development of creative industries and boost economic growth. It is estimated that outstanding loans by domestic banks to innovative enterprises, which currently stand at NT$180 billion, will increase to NT$360 billion within three years. As for government-run funds, we will implement the National Development Fund Startup Angel Program to help young entrepreneurs realize their dreams. The program, which is projected to help 350 new enterprises get off the ground within five years and cultivate at least 1,000 eager entrepreneurs, is expected to generate many employment and business opportunities. Third, we will be taking aggressive measures to put land to better use and carry out urban renewal. We will draw up a list of idle land and dilapidated old buildings, and will make unused military land available for development. We will also step up implementation of public-sector urban renewal programs, and actively provide guidance to encourage private-sector urban renewal undertakings and spur private investment. We have also begun promoting construction of affordable housing, including a total of 10,579 government-sponsored build-for-sale units in the Fuzhou area of New Taipei City’s Banqiao District and the vicinity of A7 Station on the Taoyuan International Airport MRT line. But this is not enough – we intend to carry out more projects like these in order to spur greater investment and ameliorate housing problems for young people in areas where housing prices are high. By adopting these three sets of financial and economic policies and establishing the free economic pilot zones, the administration has touched off a spark that, when supported by the private sector, can be fanned into flames of economic recovery that will burn ever more brightly.

Further opening Taiwan's markets Taiwan is an island with few natural resources, a relatively small economy, and limited domestic demand. Our

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economic growth primarily depends on external trade, investment, and consumption. In 2003, during my tenure as mayor of Taipei City, I was invited to take part in the East Asia Economic Summit held by the World Economic Forum in Singapore. At the time, ASEAN was pursuing a “10 plus 3” trade agreement between the 10 ASEAN countries and mainland China, Japan, and the Republic of Korea (ROK). Although it had been only a year or so since our accession to the WTO, I already sensed that Taiwan’s economy was in danger of becoming marginalized. Therefore, the title of my speech at the summit was “Why not 10 plus 4?” My point was that Taiwan should also be allowed to join the trade agreement with ASEAN. Since Taiwan had signed very few free trade agreements (FTAs), we lagged far behind our competitors in terms of market share in our major export markets. For example, after the FTA between the ROK and ASEAN came into effect in 2007, the ROK’s ASEAN market share overtook Taiwan’s, and since the FTA between the ROK and the United States took effect in 2012, Taiwan has fallen even further behind the ROK in terms of U.S. market share. To deal with the danger of Taiwan’s marginalization, right after I took office as president five and a half years ago I immediately adopted a policy of deregulation and market opening and sought to identify major trading partners with which we could sign FTAs to strengthen our economic links with the international community and make our economy more robust. The principal driving force behind global trade liberalization has shifted from the WTO to regional and bilateral F TA s, th roug h which various countries are building economic alliances. At present, at least 384 free trade agreements have entered into force around the world. Such agreements enable the signatory countries to reduce or waive tariffs and simplify customs clearance, which facilitates the expansion and redirection of trade and investment. Before I took office, we had signed four FTAs with five of our diplomatic allies in Central America. The FTAs did a lot to improve our bilateral relations with each of these allies. However, trade with those countries accounted for less than 0.2% of our total trade, so we needed to sign other FTAs with major trading partners before there could be more substantive benefit for our economy. The free trade agreements reached before I came to office had only brought Taiwan US$0.14 in tariff exemptions and reductions per US$100 in trade, but for the first nine months of last year this figure was up to US$9.65 thanks to the impact of our ANZTEC agreement with New Zealand and our ASTEP agreement with Singapore. However, even

though this marks 69-fold growth, we still are way behind our trade competitors. The figure for the ROK, for example, stands at US$36.1, and for Singapore is US$70.7. How can we not be in a hurry to catch up? The marginalization of the ROC in regional economic integration also limits the export of our products. Between 2000 and 2008, the market share of Taiwanese products dropped by nearly one half in one major market after another – in the United States from 3.3% to 1.7%; in Japan from 4.7% to 2.9%; and in the European Union from 2.8% to 1.5%. These figures indicate that our economic and trade policies of the time had already led to the gradual marginalization of our country in international markets. However, since 2008 this administration has modified the government’s approach and has worked hard to open our markets and boost our international competitiveness. After five years of concerted effort, as of the end of last year our market share in the U.S. and the EU had only dropped slightly from 2008, while in Japan and the ASEAN countries it had actually risen. This is ample proof that courageously facing external challenges is the optimal strategy for maintaining Taiwan’s economic vitality. Of course, we must continue our efforts not only to consolidate our exports to such major markets as the U.S., Japan, and the EU, but also to actively develop other emerging markets, including those of the ASEAN nations. A prominent Taiwan business leader once stated that the vast majority of his company’s products were intended for export, and therefore asked: If manufacturers in other countries can enjoy zero tariff treatment when exporting their products while tariffs of 5% to 10% are levied on us, how can we compete? From the start of my presidency, I was keenly aware that if we wanted to take Taiwan's economy to the next level, we would have to break through the stalemate in cross-Strait relations. If Taiwan was to expand further into the mainland Chinese market and more readily take part in regional economic integration, there was only one way to do it – we were going to have to end the cross-Strait standoff, boost cross-Strait economic and trade cooperation, and respond in a timely manner to the economic transformation of mainland China by adjusting our industrial structure and pursuing cross-Strait industrial cooperation. Therefore, five and a half years ago this administration made the 1992 Consensus – whereby each side acknowledges the existence of “one China” but maintains its own interpretation of what that means – the foundation on which to rebuild the cross-Strait relationship. In addition, we identified viable diplomacy as the means to avoid zero-sum diplomatic

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and investment from Taiwan, we competition between the two sides. ourselves have to do the same. As a result, the Taiwan Strait is no We now s e e ad va n c e d c ou n longer a tense flashpoint, but rather tries responding to the pressure of has become an avenue of peace, competition by striving to carry out and a gateway through which other economic reform. They are develcountries can enter the mainland oping industries in which they are Chinese market. comparatively strong, helping vulnerThe government has maintained able indust ries rest r uc t u re, and a balanced strategy in promoting pu rsuing multilateral and bilatthe development of external trade eral economic integration. The most and investment relations. On the recent example is the ROK’s concluone hand, it has endeavored to sion of FTA talks with Australia on improve the cross-Strait relationDecember 4 last year. Tariffs will be ship and increase bilateral trade immediately lifted on most goods and investment. At the same time, produced by the ROK’s relatively it is expanding international relastrong industries, such as automotions and participating in regional Ma: “As long as we head clearly in the biles, household electrical appliances, economic integration. These two direction of liberalization, Taiwan's econelectrical equipment, and machinery. approaches are complementary, and omy will certainly excel once more.” This is going to make ROK products a proper balance must be struck photo : cna a lot more competitive in Australia. between them. In 2010, we signed RO K P r e s i d e n t Pa r k G e u n - hy e the Cross-Straits Economic Cooperation Framework Agreement (ECFA) with mainland on December 5 of last year declared that her country will China, our largest trading partner. In 2011, we concluded actively seek to join the TPP, and Canada, Australia and our first bilateral investment agreement in 60 years with New Zealand have said they would welcome the ROK’s Japan, our second largest trading partner. In March of membership. Even a developing country like Vietnam has 2013, we resumed talks under the Trade and Investment begun taking steps in this direction. It joined the TPP talks Framework Agreement (TIFA) with the United States, our in March 2010, is now a member of the RCEP, and is actively third largest trading partner. In July 2013, we inked an holding FTA negotiations with the ROK, EU, and Russia. When confronting challenges, the true key to success is economic cooperation agreement with New Zealand, our 40th largest trading partner. And in November 2013, we our own resolve. From a historical perspective, Taiwan’s signed an economic partnership agreement with Singapore, economy has weathered numerous crises over the past our fifth largest trading partner. We will continue working several decades. We have always bravely faced the pressure to conclude economic cooperation agreements with members brought on by transformation. In the process, the people of the ASEAN and the EU, and will also be seeking member- of Taiwan have demonstrated their character: unswerving ship in the Trans-Pacific Partnership (TPP) and Regional perseverance, optimism, resourcefulness, and courage. Today, amidst increasingly fierce global economic compeComprehensive Economic Partnership (RCEP). My fellow countrymen, our trade with the 12 members tition, we must strive all the harder and summon up even of the TPP in 2012 accounted for a 35% share of Taiwan’s greater courage. If we cannot keep up with the times and boost our total external trade, while trade with the 16 members of the RCEP accounted for a 56% share. These figures show how competitiveness, there will be no sequels to Taiwan’s story of important it is, and how urgently necessary, that we join success. In a changing global economy, Taiwan must stride confidently forward. That is the only way we can catch up these two economic partnerships. In order to maintain Taiwan’s economic growth, expand with the rest of the world. It is also the only way we can trade and investment, increase job opportunities, and spur create chances for ourselves to prosper. As for opening up our markets, we have to be prudent and salary growth, we must take part in regional economic integration. But there are tradeoffs involved. We have to abide prepared, but not overly concerned. And more importantly, by the principles of equality and reciprocity. If we expect we must have confidence. Market liberalization in Taiwan other countries to deregulate and open their markets to trade dates back decades; it is not just getting started today. In the

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1980s, we started to allow U.S. service firms to enter the Taiwanese market. Back then, many people were worried about what would happen if Taiwan’s economy could not withstand the impact. But in January 1984, when McDonald’s came to Taiwan, traditional breakfast outlets in Taiwan continued to sell Chinese-style unleavened sesame cakes and deep-fried dough sticks. In July of the same year, Kentucky Fried Chicken also came in and, contrary to expectations, stimulated the popularity of Taiwanese-style fried chicken fillets. More recently, Starbucks has started doing business in Taiwan as well, but our local firms quickly learned from its business model and established coffee shop franchises such as 85ºC. They created added value in the process, and eventually began to market themselves worldwide. When the ROC acceded to the World Trade Organization in 2002, many people were concerned that Taiwan’s agricultural sector could not withstand the impact. However, since then Taiwan’s total agricultural output value, agricultural exports, and farming incomes have all increased. From this one can see that Taiwan’s industries are not fragile at all. We must have confidence in ourselves. Instead of being afraid of competition, we should welcome it, because only through competition is there progress.

A brighter future for Taiwan In a changing international economic environment, competition between countries is extremely fierce. However, as long as we head clearly in the direction of liberalization, Taiwan's economy will certainly excel once more. Currently, our most important task is to speed up the pace of trade liberalization and market opening. The CrossStrait Trade in Services Agreement was signed last June, and then sent to the Legislative Yuan for deliberations in September. Since then, more than three months have elapsed and the Legislative Yuan is still conducting public hearings. We hope that legislative deliberations will begin soon, so that the statutorily required procedures can be completed at an early date. For Taiwan's trading partners, the delayed ratification of the Cross-Strait Trade in Services Agreement has triggered doubts on the part of governments and corporations. They have begun to think that domestic opinion in Taiwan is divided and that consensus cannot be reached very easily. This severely affects their willingness to sign FTAs with us and expand their investments in Taiwan. And that is not all. The ROK and Japan are currently negotiating an FTA with mainland China. Some of the preferential treatment the two countries are seeking is exactly what is included in the Cross-Strait Trade in Services Agree-

ment. If the ROK and Japan reach a deal with the mainland while we remain stalled, we will effectively be handing the mainland market to our competitors. Therefore, I once again solemnly call on both the ruling and opposition parties to work together as expeditiously as possible to pass bills that are conducive to Taiwan’s economic development. To show our determination to participate in regional economic integration, I have instructed the Executive Yuan to expand the existing International Economic and Trade Strategy Task Force, and to act as quickly as possible to propose specific action plans for accelerating promotion of the Cross-Strait Trade in Services Agreement and a tradein-goods agreement, and for joining the TPP and RCEP. I will personally preside over the first meeting of the task force on January 3, and in the future will regularly receive briefings from it. I will also ask former Vice President Vincent Siew, who just last November led a group of senior Taiwanese business leaders on a visit to the US, to set up a promotion committee composed of members from the private sector, including figures from the opposition parties and representatives of the business community. This committee will solicit a full range of public opinion in order to build consensus and propose concrete strategies by which Taiwan can get a foot in the door in the process of regional economic integration. The completion of ECFA follow-up talks and agreements as well as Taiwan’s membership in the TPP and RCEP are our unswerving goals. This administration will adopt a dual-track approach and seek public unity to move forward at full speed. The Executive Yuan will also make good use of an already earmarked 10-year budget of NT$98.2 billion in an all-out effort to implement the Program to Assist with Industrial Adjustment to Trade Liberalization. This undertaking will provide assistance to companies that are in need of guidance and financial support. Taiwan is now at a critical juncture. This government will apply itself even more diligently and make an even greater effort, and will conscientiously heed criticism and feedback from citizens. We also hope that the various sectors of our society will come up with constructive ideas and pool their strengths to jointly grow our economy. The ruling and opposition parties should set aside their biases and work together to promote economic and trade liberalization and boost Taiwan's competitiveness. In the new year, Taiwan has to move forward. It has to keep going. And it has to come together as one to take big strides on the world stage. We believe that through the joint effort of the government and the people, our economy this year will surely be better than last year!

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Cover story

biotech

New Impetus for BIotech 生技產業的新動能 BY JENS KASTNER

撰文 / 嚴斯

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For years, biotechnology has been talked about as a potential new source of vitality for the Taiwan economy as the information-technology sector matures. Until recently the industry’s progress has been slow, but new developments – including three major investments and a host of products in the pipeline – are raising hopes that the time may be coming for Taiwan biotech to flourish.

近幾來，隨著資訊科技產業趨於成熟，人們常說生技可能成為台灣經濟活力新的泉源。這個產業原本發展速度緩慢，但最近幾項新的發展─包括三項重大投資和多項產品正在研發─讓人樂觀期待，台灣生技產業起飛的時刻可能已經到來。

用

Google地圖查新竹市生醫路的衛星圖，看到的是雜草叢生的空地，實際造訪才發現，這裡有個簇新的生技藥廠，即使以美國和歐洲的水準來衡量，它都是一流的。這裡是2012 年在加州成立的新創公司喜康生技股份有限公司的總部。2013年12月，台灣生技界主要人物受邀前來參觀之後，對這個新廠讚不絕口。其中一位希望不要具名的貴賓說：「它跟在美國的生技廠一樣寬敞。台灣的生技實驗室往往很擁擠，本地公司在申請認可時，就曾因為這一點被美國食品藥物管理署指正。」本地生技產業在台灣整體經濟的比重並不大，但最近幾個月的三項發展顯示，未來要靠生技業彌補台灣科技產業衰退的說法並非痴人說夢。第一項發展是喜康生技公司突然出現。它的第一期廠房以超快速度開始運作，生產單株抗體，當做生物藥品的基本成分。這類藥品是利用活體細胞研製而成。第二項發展是台灣政府發起成立的生物技術開發中心旗下設立台康生技股份有限公司，它接收了生技中心先導工廠商業化生產抗體的業務。第三是新加坡藥品研發公司亞獅康（A S L A N

ey in “Shengyi Road, Hsinchu” on Google maps and all that is visible is scrub and grass. But go there and you’ll find a brand-new biomedical plant – the headquarters of JHL Biotech, a start-up founded in California in 2012 – that is topnotch even by U.S. and European standards. After key figures in Taiwn’s biotech community were shown around the facility at its inauguration in early December, they were lavish with their praise. “It’s as spacious as if it were in the States,” says one of the VIP guests, who asked not to be named. “Taiwan’s biotech laboratories are usually cramped, which has been an issue with the U.S. Food and Drug Administration when local companies apply for regulatory approval.” The domestic biotech industry is still far from being a key factor in Taiwan’s overall economic performance. But recent months have produced three developments suggesting that talk of biotech at some point offsetting the decline in the island’s IT sector can no longer be dismissed as a mere pipedream. First was JHL’s sudden emergence, getting its pilot plant in operation in record time for manufacturing monoclonal antibodies for use as active pharmaceutical ingredients (APIs) in biologics, which are drugs derived from a living cell. Second, Taiwan’s government-initiated Development Center for Biotechnology (DCB) spun off a company called EirGenix Inc.,

Pharmaceuticals）在台灣成立子公司，被視為一大突破。這家公司業務包括研發生物藥品和「小分子」藥品，也就是俗稱的傳統化學製藥。這三家公司的商業模式很不一樣，但共同點在於它們的成立證明籌募資金不成問題。喜康公司公同創始人、總裁兼首席執行官喬石瑞說：「我們籌到的錢，比基因泰克公司（Genentech）40年前首次公開募股時所募到的資本還要多。而且我們只花九個月就把新竹廠蓋好。這兩者都很不簡單。」基因泰克是美國第一家生物科技公司，它在1980年首次公開募股時，投資者瘋狂搶購股票。喬石瑞和喜康的另外幾位重要幹部本是在基因泰克起家。根據喜康的網站，他們資金主要來自幾家高科技創業投資公司，例如凱鵬華盈（Kleiner Perkins Caufield & Byers）和台灣的中華開發工業銀行。喜康在台灣的初期許可投資金額是2,000萬美元。喬石瑞說：「歐洲的銀行也有參與。他們提供高額貸款，條件是我們在中國的工廠除了買美國設備，也要買歐洲的設備。」此外，有部分資金來自中國大陸，原因也跟策略考量有關。跟生物製藥和生技相似藥（指生物製藥專利期結

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biotech

which has taken over DCB’s pilot plant to engage in the commercial manufacturing of antibodies. And third, ASLAN Pharmaceuticals, a Singaporean drug developer focused on both biologics and “small molecules” (the industry’s term for traditional, chemically engineered drugs), set up a subsidiary in Taiwan in what was viewed as a major breakthrough. While the three firms are following very different business models, their stories have one important aspect in common – securing sufficient investment funds was no problem. “We raised more money than Genentech’s IPO 40 years ago and we built the Hsinchu plant in just nine months, which are both quite some achievements,” says Racho Jordanov, JHL’s co-founder, president, and CEO. Genentech, where Jordanov’s career and those of other key JHL personnel took off, was the first biotech firm in the United States, and its IPO in 1980 famously set off an investor frenzy. JHL’s website lists high-tech venture capital firms (VCs) such as Kleiner Perkins Caufield & Byers, as well as Taiwan’s China Development Industrial Bank, as the company’s main sources for financing. The company entered Taiwan with an initial approved investment of US$20 million. “European banks

are playing a role, too, extending generous loans under the condition that we purchase European equipment to go with the U.S. equipment to be imported into China for use in our plant there,” notes Jordanov. Additional capital is coming from the Chinese government, also due to strategic considerations. Companies involved in biologics and biosimilars (the term for biologics’ successors after patent expiration) are currently investors’ darlings, partly because the technological and regulatory threshold to develop and manufacture them is extremely high. While Indian and Chinese manufacturers are unbeatable in terms of price when it comes to producing small molecules, the steep biotech threshold is expected to provide Taiwan with a continuing competitive edge for a number of years. Another difference between biopharma and traditional drugs is the nature of their applications. Biotech drugs typically target diseases for which treatment with chemical drugs alone is not an ideal option. One of the earliest examples was the use of biologics in producing insulin, and one of the latest is their use in anti-cancer immune therapy, which transforms patients’ blood cells into “soldiers” that go on “seek-and-de-

束後跟進生產且具有相同藥效的產品）的業務有關的公司，是投資人最愛。部分原因在於開發和製造這些藥品的技術和法規門檻非常高。在傳統製藥方面，雖然印度和中國藥廠的價格優勢沒有人可匹配。但生技的高門檻，也意謂著台灣幾乎可以確定會享有好幾年的競爭優勢。另一項差別在於化學藥品和生技藥品有不同的用途。生技藥品一般是針對光用化學藥品無法有效治療的疾病。生技製藥最早的例子之一是胰島素的應用。另一個最新的例子則是生化抗癌免疫治療。它可以把病人的血液細胞變成特種部隊，可以去搜尋癌細胞，加以殲滅。喜康公司新竹先導工廠將在2014年初開始運作，先生產少量抗體，主要用於早期臨床實驗。同時，喜康在中國武漢建造商業生產設施，預計在2015年中開始生產商品化藥物的基本成分。據喜康表示，這將是世界上規模最大的單一用途生技藥廠。一般而言，向喜康購買藥物基本成分的客戶，不是小型生技研究公司，就是主要的跨國大藥廠（喜康說，該公司已經在與輝瑞和諾華兩大藥廠洽談）。前者一般不想在藥品研發階段自己花錢蓋工廠，而後者

stroy missions” against cancer cells. JHL’s Hsinchu pilot plant will be operational in early 2014, producing small quantities of antibodies for use mainly in early-stage clinical trials. Simultaneously, JHL is building a commercial manufacturing facility in Wuhan, China, scheduled to begin production of APIs for commercialized drugs in mid-2015. JHL says it will be the world’s largest singleuse biopharmaceutical plant. Typically, the customers for the firm’s APIs will be either small biotech research companies, which generally wish to avoid having to invest in building their own plant during drug development, or “Big Pharma,” the leading multinational drug companies, which might prefer outsourcing for strategic reasons (JHL says it is currently in discussion with Pfizer and Novartis). Either type of customer might later partner with JHL for drug development and manufacturing in exchange for royalties in the Asia market. Jordanov also cites the development of biosimilars as a third pillar in the company’s business model, “as many mega-sale drugs are coming off patents.” After the idea for establishing JHL was conceived in San Francisco, there were ample reasons to choose Taiwan as the location for the headquarters, says

可能出於策略考量，寧可把藥品成分的生產外包出去。這兩類客戶後來都有可能與喜康共同研發和生產藥品，以換取在合作後而享有的亞洲市場權利金。喬石瑞並說，「許多有龐大銷量的藥物專利即將到期」，因此開發生技相似藥將是喜康經營模式的第三大部分。喬石瑞說，創立喜康公司的念頭在舊金山發想之後，選擇在台灣成立總部有許多理由。他指出：「我們想要立足在亞洲，因為亞洲市場成長快速。」「台灣的主要優勢在於它有人才，法規雖嚴格但很明確，有政府的支持，而且智慧財產受到尊重，這讓我們覺得在台灣比在中國有利。」這番考量的結果，對喜康和台灣是個雙贏的局面。喜康在台灣的職員初期有40位，預期兩年內會增加一倍，而目前只有幾個外籍人士。此外，喬石瑞估計台灣廠未來每年稅前盈餘將達到大約8,000萬美元，而喜康與中央研究院和各大學合作進行的研究，將使台灣整個生技產業受惠。他進一步指出，由於新竹和武漢的工廠將使用同樣的電腦控制，喜康每個月將安排三名中大陸員工到台灣受訓。這表示從一開始，武漢廠的人員將會熟悉整

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Cover story Jodanov. “We wanted to position in Asia because the Asia market is the fastest growing,” he notes. “The main draws for Taiwan were the availability of talent, a strict but clear regulatory environment, government support, as well as respect for IP, which makes us more comfortable here than in China.” What resulted was a win-win situation for both the company and the host country. JHL’s staff in Taiwan – which has started with a headcount of 40 people and is expected to double in two years – includes only a few expats. In addition, Jodanov estimates that the Taiwan plant will eventually generate about US$80 million a year in pre-tax profits, while JHL’s research projects carried out in cooperation with Academia Sinica and local universities will benefit the Taiwan biotech industry as a whole. He further notes that as the Hsinchu and Wuhan plants will use the same computer controls, JHL will be bringing in three Chinese staff members per month for training. This arrangement means that from day one, the Wuhan operators will be familiar with the entire system, which in turn is an assuring notion for investors. “What counts for the VCs is the business plan, the management team, and

the track record,” says Jordanov. “We have delivered on every milestone agreed on with the VCs in the 15 months since we’ve been established.” Meanwhile, EirGenix, the new operator of what was the DCB’s biologics pilot plant, lists Formosa Laboratories, Taiwan’s National Development Fund, CTBC Capital (part of what was formerly called the Chinatrust group), and Waterland Venture Capital, among others, as its shareholders. It has an asset value of NT$540 million (US$18 million). Like JHL, EirGenix can be labeled a contract development and manufacturing organization (CDMO), and according to DCB Chairman Johnsee Lee, much of the money that has been raised will be used for technological upgrades. “Not many companies in Asia can do what EirGenix and JHL do,” Lee says. “And the quantities of APIs needed for clinical trials alone are sufficient for good business already.” Lee further stresses the importance of the Good Manufacturing Practice (GMP) certifications possessed by both the DCB and JHL plants, as regulators in the United States, Europe, Taiwan, and elsewhere will only clear drug candidates for trial use in humans if they have been manufactured under that standard. Lee predicts that after success-

套作業，而這點可以讓投資人安心。喬石瑞說：「對創投公司來說，重要的是經營計畫、經營團隊和過去的績效。從我們公司成立以來，我們跟創投公司共訂的的每一個里程碑，我們都已達到。」另一方面，生物技術開發中心旗下台康生技公司的股東，，則包括台灣的國家發展基金、中國信託金控（原中信集團的一部分）和國票創業投資公司等。它的資產價值達5億4,000萬新台幣（1,800萬美元）。台康跟喜康一樣，也算是委外研發及生產服務公司（CDMO）。據生物技術開發中心董事長李鍾熙表示，台康所募來的資金有一大部分將用於技術升級。李鍾熙說：「在亞洲市場，台康和喜康是有優勢的，而且光是臨床實驗所需的藥品基本成分數量，就已經是相當大的業務。」他並強調台康和喜康都獲得良好生產規範（GMP）認證的重要性，因為唯有依GMP標準製造的藥品，才能獲得美國、歐洲、台灣等國監管機構許可，用於人體實驗。他預言，在臨床實驗取得成功並獲得監管機構的認可之後，許多客戶會再回來找台康和喜康為他們進行商業化生產。 24

ful clinical trials and regulatory approvals, many clients will return to EirGenix and JHL for commercial manufacturing.

Big step for Taiwan biotech Lee sees the emergence of the two CDMOs as a highly significant step for Taiwan’s biotech development. “Both JHL and EirGenix were set up over the last six months and take Taiwan to a new stage. Before this, Taiwanese drug companies have mostly done small molecules, which exposes them to more cut-throat competition,” he notes. Also auguring well for Taiwan’s biotech industry is the ongoing regulatory harmonization with China. Lee, who is one of Taiwan’s top cross-Strait negotiators in pharmaceutical affairs, points to a new cooperative drug development program with China to be launched later this year. Under the program, the two sides will nominate a total of about 30 drug candidates, and from that pool several will be chosen for joint clinical trials on the basis of their commercial prospects or medical urgency. “This cooperation will greatly accelerate drug development because clinical trials will no longer have to be repeated on the other side for regulatory approval

台灣生技的躍進李鍾熙認為，這兩家研發和生產服務廠商的成立，對台灣生技業的發展十分重要。他說，喜康和台康在過去半年內成立之後，把台灣帶入一個新的階段。他指出，在此之前，台灣的藥廠大多從事化學製藥，因而立斷得面臨激烈的競爭。另一項有利於台灣生技業發展的條件，在於台海兩岸在推動藥品規範的一致化。李鍾熙也是台灣在兩岸製藥業議題談判的主談人之一。他說，兩岸今年稍後將啟動一項新的藥品開發合作計畫。根據這項計畫，雙方將共同列出大約30項藥品，再依商業發展性或醫學的急迫性從中選出好幾項，由雙方共同進行臨床實驗。他解釋說：「這項合作將大幅加快藥品研發的時程，因為不需要再為了取得對方監管單位的許可而重複進行臨床實驗。這項合作計畫將會選擇的藥品，可能有一大部分是針對華人較常罹患的疾病，例如肝癌和糖尿病。由於西方人罹患這些病症的人口比例較低，一般認為大型跨國藥廠比較不會跟中國和台灣的藥廠競爭這類針對中國市場研發和生產

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there,” Lee explains. Presumably the lion’s share of the drugs selected under the program will focus on diseases that disproportionally plague ethnic Chinese populations, such as liver cancers and diabetes. As the prevalence of these diseases is lower in the West, Big Pharma is regarded as less likely to compete with Chinese and Taiwanese developers and makers of treatments aimed at the rapidly growing China market. Lee also notes that DCB has recently been certified by China to test Taiwanese biotech-based cosmetics for marketing in China. The arrangement should facilitate sales of these products across the Strait, since DCB can complete the testing faster than the Chinese laboratories now doing the job. As cosmetics are a major source of revenue for many biotech research companies, and since Chinese consumers have proven very receptive to Taiwanese cosmetics brands, this regulatory relaxation is seen as an additional shot in the arm for the Taiwan biotech industry.

Looking beyond Singapore ASLAN, the Singaporean virtual drug developer whose investment last year in Taiwan was said to be even larger than JHL’s, is considered a potential client

From left to right, Johnsee Lee, chairman of the Development Center for Biotechnology (DCB); Carl Firth, CEO of Singaporean drug developer ASLAN; and David Silver, president of Taipei-based consultancy BiotechEast.

for Taiwan’s biotech CDMOs JHL and EirGenix, according to industry observers. ASLAN’s business model is to in-license drugs that typically have six to seven years of toxicity studies and animal testing behind them and have either just started or are about to start clinical trials. ASLAN typically in-licenses global rights to drugs and then designs and executes clinical trial programs, starting with phase 1 clinical trials, which usually involve 20-100 healthy volunteers, followed by phase 2, which typically look at results from 100-500 patients. At some stage, the company will seek to find partners for

的藥品的生意。李鍾熙並說，生物技術開發中心最近獲得國認證，可以在台灣代為檢驗銷往中國大陸市場的生技類化妝品。這項安排應該有助於這類產品銷往大陸，因為生物技術開發中心可以比中國目前提供這項服務的實驗室更快完成相關的檢驗。化妝品是許多生技研發公司重要的收入來源，而且中國消費者很能接受台灣的化妝品品牌，因此讓生物技術開發中心代檢的做法，被視為台灣生技產業的另一項利多。

放眼新加坡之外新加坡藥品研發公司亞獅康去年在台灣的投資，據說比喜康的規模還要大。業界觀察家說，這家公司被視為台灣委外研發和生產服務公司喜康與台康的潛在客戶。亞獅康的經營模式，是針對已經經過六到七年毒性研究及動物實驗而且臨床實驗剛開始或即將展開的藥物，取得它們的全球授權，並設計和執行臨床實驗計畫。第一階段的對象一般是20到 100名自願接受測試的健康民眾。第二階段則以100

global phase 3 clinical trials, which may involve several thousand patients, and for eventual commercialization. “We are focusing on the four years during which a drug that works in a mouse is proven to work in a human,” says Carl Firth, ASLAN’s CEO. “We acquire a drug that has made it through animal testing, that has a competitive profile, and where the partner is unable to progress it themselves, which might be for strategic reasons.” He adds that the out-licenser’s motivation could also be a desire to have a partner with a different or innovative approach to

到500名病人為研究對象。在某個時間點，亞獅康會想要找合作對象進行第三階段的全球性實驗和最終的商業化生產。其中第三階段的實驗可能需要好幾千名研究對象。亞獅康執行長傅勇說：「證明在老鼠身上有效的藥物而在人體也有效，大約需要四年時間。我們尋得並經授權的藥品，都已通過動物實驗階段，具有競爭潛力。他說：「授權給我們的一方或許出於策略性考量無法進一步研發，或他們也可能是想要找個能用不同的、具有創新性的方法來研究藥品的合作夥伴。」 ASLAN的目標不在於找尋普遍適用的療法，而是或許可以其他藥物一起配合使用，對特定病患有效的藥品。傅勇以肺癌為例說明指出，肺癌其實有幾百種，某個療法的效果，可能會因病人的基因、人種和癌症發展到第幾期等因素而有所不同。他說，亞獅康把注意力集中在一到兩成對於藥物有正面反應的病患。而且，亞獅康研發的藥物是針對在亞洲較為常見的腫瘤，因此該公司選擇在台灣落腳，以利用台灣良好的醫學與研究基礎設施和臨床實驗方面豐富的

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Cover story develop the compound. ASLAN’s method is to try to identify drugs that work in a particular kind of patient, possibly in combination with other drugs, rather than seeking cures that are effective for the entire population. Taking lung cancers as an example, Firth explains that the term covers what are actually hundreds of different diseases, and that the effectiveness of a treatment may vary according to a patient’s genome, ethnicity, and the stage of the disease, among other factors. ASLAN focuses only on the 10% to 20% of patients that will have a positive response to the drug, he says. Because the company is targeting tumors prevalent in Asia, in addition, ASLAN says it chose to locate in Taiwan because of its good medical and research infrastructures and ample clinical trial experience. “Taiwan has come quite a long way in becoming an attractive biotech location,” notes Firth. “Three or four years ago, a strong Singapore biotech firm would not even have considered Taiwan in the first place.” Firth points out that ASLAN’s in-licensing deals typically do not involve initial payments. That approach saves money that can be used for the clinical trials, which can be very expensive. Back-

end profits can be shared with the partner later. Firth notes that Big Pharma, on the other hand, might make an upfront payment in the neighborhood of US$80 million for oncology drugs ready to enter global phase-3 clinical trials, with the subsequent milestone payment for commercialization reaching as high as US$700 million. “But it is obviously a very risky and expensive process to get there,” he says. “The reason we run clinical trials is that we don’t know what the answer will be,” adding that as a rule of thumb, only one in three candidates will make it from phase 1 to phase 3. Firth cautions that if a drug developer has only one or two drugs in the pipeline, as is the case with many Taiwanese developers, it is accordingly quite precarious from an investor’s perspective. In contrast, ASLAN looks like a safer bet for the four VCs that are backing it (BioVeda Capital, Cenova Ventures, Morningside, and XinChen Ventures) as it currently has three compounds in the pipeline – two for solid tumors and one for rheumatoid arthritis, with a few more compounds being targeted over the course of the year. “We have no lab, no plant, and we only have 11 people,” says Firth. “But if you look at our port-

經驗。傅勇說：「做為具有吸引力的生技研發地點，台灣取得了長足的進步。三、四年前，新加坡具有規模的生技公司根本不會考慮來台灣設點。」傅勇指出，亞獅康跟合作對象簽訂授權合約時，一般不會先付錢。這樣可以把錢省下來，用於可能需要大筆費用的臨床實驗。在獲利之後，利潤再跟授權方分享。他指出，跨國大藥廠的做法是，對於已可進入第三階段全球性臨床實驗的腫瘤藥物，他們可能會付大約8,000萬美元的權利金，等到商業化生產時，可能會再付七億美元之多。他說：「但這顯然是個風險跟代價都很高的事。我們之所以進行臨床實驗，是因為我們不知道會有什麼結果。」他並說，根據經驗，每三項研發藥品當中，只有一項能從第一階段的臨床實驗推進到第三階段。他審慎地說，如果一家藥品研發公司只有研發一兩樣藥品，從投資者的角度來看很不穩當。然而類似此型態的台灣公司不在少數。相較之下，對於支持A S L A N的四家創投公司（B i o V e d a C a p i t a l, 千驥C e n o v a V e n t u r e s, 晨星 Morningside和新陳XinChen Ventures）來說，投資 ASLAN比較保險，因為該公司目前有三項藥品在研 26

folio, you’ll see that no biotech company in [East Asia excluding Japan] has more innovative drugs in the pipeline than us.”

Research institutions In its strategic quest to in-license more compounds, ASLAN is likely to benefit from the world-class research facilities in Taiwan, most prominent of which are DCB, Academia Sinica, and the government’s Industrial Technology Research Institute (ITRI) in Hsinchu, including its Biomedical Technology and Device Research Laboratories. Traditionally the ITRI labs have primarily researched botanical and chemical drugs, but in recent years have turned more to biologics. ITRI also runs GMP-certified manufacturing plants, which Taiwanese biotech research companies can turn to for favorable production conditions. According to Richard Shau, the division’s General Director and VP, the current focus of ITRI’s biotech research is a novel “scaffolding” made of biotechengineered collagen, which enables the linking of chemical and botanical compounds and antibodies. “The key advantage of the scaffolding will be targeted drug delivery,” he explains. “A drug only cures when delivered to the

發當中，包括兩項惡性腫瘤藥物和一項類風濕性關節炎藥物，此外還有幾種藥物可能在未來一年取得授權。傅勇說：「我們沒有實驗室或廠房，而且只有11名員工，但你如果看看我們的投資項目，就會知道整個東南亞（日本以外的東亞地區）沒有一家公司像我們有這麼多研發中的創新藥品。」

研究機構亞獅康的策略是要取得更多藥品的授權，在這個過程中，該公司可能可以借助於台灣世界級的研究機構，特別是生物技術開發中心、中央研究院和位在新竹的工業技術研究院。工研院設有生物醫學與醫療器材研究所，傳統上是研究以植物和化學藥劑為主，但近年重點轉移到生物製藥。工研院有GMP 認證的生產工廠，台灣的生技研究公司可以在有利的條件下委託他們生產。據生醫與醫療器材所所長邵耀華說，工研院生技研究當前的重點是一個創新的「支架」技術，它利用以生技製造的膠原蛋白，把化學和植物化合成分跟抗體產生連結。他解釋說：「支架技術的主要優

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targeted part of the body, whereas elsewhere it may be a poison.” Although a chemical drug may be good at killing a cancer cell, he continues, it can cause drug resistance, as well as other side effects, if it doesn’t hit the right target. The scaffolding now allows the chemical drug to sniff out the cancer cell at a lower dosage, with the antibody taking over the job from there. “This is the state of the art in cancer drugs currently,” he notes. Firth adds that a botanical drug can also be linked to the scaffolding, as such drugs are good at suppressing certain side effects, such as appetite loss or drowsiness. The opportunities and risks of the drug-development business are exemplified by Anti-CD3, the first drug that ITRI successfully embedded in its scaffolding. After years of development work, the compound failed phase 3 clinical trials in the United States a decade ago because of too many complications and side effects. In 2010, ITRI took on Anti-CD3 to use in its collagen platform and succeeded in markedly reducing side effects through better drug reformulation technology. Following autoimmune system trials in chimpanzees, ITRI outlicensed the drug to a Taiwanese drug developer in early 2013. Shau predicts

勢是在對症下藥，得以使藥物送到它需要治療的部位，發揮療效。但標靶治療對身體其他部位來說，它就是毒。」他說，化學藥品雖然可以殺死癌細胞，但如果目標不對，它會產生抗藥性和其他副作用。支架技術讓醫生可以利用低劑量的化學藥物精確找到癌細胞，然後讓抗體產生療效。他指出：「這是目前最尖端的癌症藥物。」傅勇補充說，植物藥品也可以運用支架技術來施打，因為這類藥品能有效控制若干副作用，例如沒胃口或嗜睡。 Anti-CD3是工研院第一個和支架成功融合的藥物，它就最能體現藥品研發行業的機會和風險。經過多年研發，這項藥物10年前曾在美國的第三階段臨床實驗宣告失敗，原因是併發症和副作用太多。2010 年，工研院把Anti-CD3用在它的膠

Biochips for a better diagnosis

he availability of the best treatment for a disease means nothing without the right diagnosis, and Taiwan is making impressive strides in the development of so-called diagnostic biochips. These chips, as produced by Hsinchubased Phalanx Biotech under the brand name CytoOneArray, are 1x3-inch glass slides hosting 26,000 probes. When the probes hook up with genes or gene parts in a DNA sample, a staggering 305 genetic diseases for developmental delay or intellectual disability can be detected in prenatal and postnatal tests. All of the diseases and disorders are relatively rare, but doing the math, it becomes clear that the product is destined to pay off. About 1% of people suffer from autism and 1% from schizophrenia, and when all diseases on the CytoOneArray target list are added together, they affect 6% to 8% of a given population. A prenatal diagnosis of autism, for example, is important, as it facilitates treatment of children before the unrecognized disease turns them into an outsider in the social environment. “Our product line focuses on two markets, the first being R&D with our CytoOneArray chip and the second prenatal screening with CytoOneArray,” says Gordon Ho, Phalanx’s CEO. “As CytoOneArray is classified as a medical device, it will require regulatory approval, which we are preparing for.” Ho says he expects the regulatory nod to come sometime in 2015 because detection is much better with CytoOneArray than with current technology. Until CytoOneArray can be sold to prenatal screening clinics, hospitals, or doctors, Phalanx’s revenue-creation is based on two pillars. First, there is the service model, where clients – typically researchers – send in cell samples for analysis. Second, Phalanx supplies other service laboratories with consumables and disposables (that is, the biochips) and provides technical support, so that they can execute the analysis services in their local regions. A particular illustrious example among Phalanx’s clients is the U.S. National Aeronautics and Space Administration (NASA), whose researchers are using the Taiwanese biochips to profile the gene expression of mice that have gone on space missions versus those that remained on the ground. — By Jens Kastner

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IMPROVING DIAGNOSIS — The biochips developed by Phanlanx Biotech in Hsinchu can help in early detection of a large number of genetic disorders. photo : phanlanx

that the product may gain approval from the U.S. FDA for a phase 1 clinical trial sometime in 2014. Asked about the ITRI biotech division’s strategic direction, Shau said the stunning successes reported in the United States in recent months in relation to gene therapy technology opens even more

opportunities for targeted delivery based on ITRI’s collagen scaffolding. The challenge for Taiwan now is how to bring all the research done on the island together. “The DCB has the antibodies, we have the scaffolding. Together we can create spin-offs for multimillion and billion-dollar projects,” he says.

原蛋白平台上，並成功透過藥品製劑重組技術大幅降低它的副作用。在針對黑猩猩進行自體免疫實驗之後，工研院於2013年初授權給台灣一家藥品開發公司。邵耀華預測，這項產品可能在2014年間獲得美國食品藥物管理局許可，展開第一階段臨床實驗。對於工研院生醫部門策略發展方向的問題，邵耀華說，美國最近幾個月關於基因治療技術獲得重大突破的消息，為工研院以膠原蛋白支架為基礎的標靶治療帶來了更多機會。台灣的挑戰在於如何整合所有在本地進行的研究。他說：「生物技術開發中心有抗體，我們有支架。我們如果合作，就可以另外成立公司，從事價值數百萬甚至數億的計畫。」但離那一天還有點遠。而且，以總體經濟規模來看，台灣生技產業到目前的成果還是有限。台灣一般對於「生技」的定義跟西方不同，它涵蓋製藥、醫療服務甚至傳統中藥，因此，台灣生技產業的總營業額只能當做粗略的指標。據生物技術開發中心統計，這個數字在2011年是2,403億新台幣（約 80億美元），2012年達到2,630億，2013年估計為 2,810億。世界最大的積體電路製造商台積電每年的 28

There is still some way to go until then, however, and what the Taiwanese biotech industry has been achieving is still humble in concrete macroeconomic terms. As the common definition of “biotech” on the island differs from Western parlance in that that it also covers pharmaceuticals, medical devices, and even traditional Chinese medicine, the industry’s total revenue statistics can only serve as a broad indicator. DCB puts the figures at NT$240.3 billion (US$8 billion) for 2011, NT$263 billion in 2012, and an estimated NT$281 billion in 2013. In comparison, TSMC, Taiwan's world-leading semiconductor foundry, alone accounts for nearly double that amount per year. But despite this relatively low level of revenue so far, the capital market has been very supportive in investing in the local biotech sector for the last several years. As a result, capitalization in the industry has grown 6.6-fold, from US$2.5 billion to US$16 billion, from 2009 to 2013. While that rate of growth exceeds that of the United States, Singapore, or Korea, the focus of investment activity has been concentrated largely on a few “poster child” firms, especially drug discoverer and developer TaiGen Biotechnology, as

營業額，就幾乎達到這些數字的兩倍。儘管生技產業到目前營業額相對較低，但資本市場過去幾年對本地生技產業展現高度投資意願。因此，生技產業資本額從2009年到2013年成長了6.6 倍，從25億美元增加到160億美元。台灣生技產業的成長率超越美國、新加坡和韓國，但投資活動主要集中在少數幾家明星公司，特別是尋找和研發新藥的太景生技（T a i G e n Biotechnology）。美國生技產業蓬勃發展，靠的是靈活的新創公司。中華民國股權投資協會秘書長蘇拾忠說：「台灣政府一向很保護占股市投資額大約三成的菜籃族，因此增加了生技創業公司上市的難度，因為這些公司還沒有真正的營收。至於創投公司投資的時限一般是7到10年，藥品研發週期卻長達15年，對他們來說時間太長。」

鼓勵新創公司但蘇拾忠說，2013年1月7日，遊戲規則突然變得對新創公司有利。那一天，負責店頭市場交易的

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opposed to the kind of agile start-ups credited with providing the U.S. biotech industry with its dynamism. “The Taiwanese government has traditionally been very protective of the mom-and-pop investors that make up some 30% of stock investments here, and has therefore made listing difficult for biotech start-ups, as they do not yet really create revenue,” says Clark Su, Secretary General of the Taiwan Venture Capital Association. “And for VCs, which typically have a timeframe of only 7 to 10 years, the 15 years needed for the drug development cycle was too long.”

Promoting startups But the rules of the game changed abruptly on January 7, 2013 for the benefit of startups, says Su. On that day the GRETAI Securities Market (GTSM), which operates the local over-the-counter market, implemented a reform that makes it easier for individual investors to buy startup shares through their stockbrokers. In addition, GTSM last month launched a special incubation board – similar to Hong Kong’s Growth Enterprise Market, Singapore’s Catalist board, and London’s AIM board – to help smallcap startups raise funds.

These innovations are expected to have far-reaching consequences for the modus operandi of VCs. Su notes that they can now identify a biotech company that has just received a patent or readied a compound for clinical trials, invest in it until it has listed on GTSM, and then exit as individual investors move in. Besides the markedly rising share prices the new rules have brought, Su sees other signs of growing interest – and perhaps even a bubble – in the biotech sector. He has long organized matchmaking events between local biotech firms and VCs, but notes that before the GRETAI reform a given presentation was usually attended by just three or four VCs. “But since then, it has always been close to 30,” he says. Still, if a bubble is developing, Su believes it is not going to burst in the next three to five years. He considers that it will take that long for the first few Taiwanese-developed drugs to have entered the market, and for “people to find out that the margins are not as astronomical as they expected.” But that timeframe will be sufficient for good biotech companies to grow, he says, as well as for Taiwanese banks and other institutional investors to have educated themselves thoroughly on the subject.

證券櫃台買賣中心開始一項改革措施，提高了散戶透過經紀人購買新創公司股票的便利度。2014年1 月，櫃買中心啟用創櫃板，協助資本額較小的新創公司募集資金，做法類似香港股市的創業板、新加坡的凱利板（Catalist）和倫敦股市的另類投資市場（Alternative Investment Market, AIM）這些創新措施對於創投公司的運作模式預料將產生深遠影響。蘇拾忠說，創投公司現在可以針對剛獲得專利或準備進行藥物臨床實驗的生技公司進行投資，等到它上櫃，創投公司就退出，讓一般投資人成為股東。這些新措施讓股價明顯上揚，除此之外，蘇拾忠還看到一些跡象，顯示投資人對生技產業的興趣越來越高，甚至可能有助長泡沫的情況。他常舉辦媒合活動，介紹本地生技公司和創投公司認識。他說，在櫃買中心推動改革措施之前，每場活動只有三、四家創投公司參加，「但後來每場都有將近30 家。」如果生技泡沫正在形成，蘇拾忠認為這個泡沫在未來三到五年不會破滅。他認為，要花那麼長時間，台灣第一批本土研發的藥品才會上市，「人們

As to whether the industry will face a hard or soft landing, Su holds that it will to some extent depend on the number of biotech firms listed by then. “The bubble will burst if there are only a handful of biotech companies in the stock markets. But if there are 50 or so, we can analyze which are good and which are bad, and then share prices will be reasonable rather than crash.” Accordingly, Su has been urging the government to be less concerned about protecting individual investors and instead approve more biotech firms for stock exchange listings. He expresses confidence that the authorities have been persuaded to follow that course, and that significantly more biotech listings will take place this year. Yet another obvious factor working against a bubble burst is the prospect of Chinese investment. Mainlandbased pharmaceutical companies are “very rich” and are eager to invest in Taiwanese biotech firms, says Su, but the Taiwanese government has so far applied the brakes because of strategic considerations. As the permitted investment from China gradually expands, however, a large new source of investment funding is expected to be available for Taiwan biotech.

也才會發現，其實利潤不像他們想像的那樣高到不行。」但他說，只需要這幾年，優質的生技公司就能夠成長，台灣的銀行和其他投資機構也能充分瞭解這個產業。至於這個產業會硬著陸或軟著陸的問題，蘇拾忠說，有相當程度要看到時有多少公司已經上市或上櫃。「如果股市只有少數幾家生技公司，泡沫就會撐破，但如果有50家左右，我們可以分析哪幾家好、哪幾家不好，這樣股價就會合理化，而不會崩盤。」因此，蘇拾忠在敦促政府不要太在意保護散戶的問題，而應該讓多幾家生技公司上市。他相信當局已經接受這樣的觀念，而今年上市的生技公司家數將會明顯增加。還有另一個明顯的因素讓泡沫破滅的情況不至於出現，那就是中國資金可能進入台灣的生技業。蘇拾忠說，中國大陸的藥廠「非常有錢」，而且很想投資台灣的生技公司，但台灣政府出於戰略考量，目前還是在踩煞車。但隨著獲准來台的中國投資逐漸擴張，台灣生技業預料將從這個新的龐大資金來源獲得挹注。

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chart: b iotecheast co., Ltd

Making it through the pipelines

s a rule of thumb, it takes a compound 15 years from discovery to commercialization as a drug. Typically, the candidate would have been in-licensed and out-licensed more than once on its way, with each research company involved adding value. But trials could go wrong at any given time. A compound that has been in-licensed for millions of U.S. dollars could be worthless overnight and likewise the business that owns it. Three milestones are coming up for Taiwan biotech, and the stories behind them are indicative of the nature of the business: • In a first for a Taiwanese drug developer, TaiGen Biotechnology Co will soon have brought a drug through to marketing. Taigexyn, an antibiotic to treat pneumonia and skin infections in-licensed by TaiGen in phase 1 clinical trials, is about to pass phase 3 clinical trials and is projected to gain regulatory approval in Taiwan and China at the same time. It will be the first drug jointly approved by the two sides, showcasing great strides in cross-Strait regulatory harmonization. “That will probably be announced in the first half of 2014 and will be a very big milestone for the industry,” says David Silver, president of BiotechEast, a Taipei-based consultancy for the biotech industry. • As the first Taiwanese drug to have been developed from scratch – from discovery through to clinical development and market approval – AOP2014/P1101, a biologic developed by PharmaEssentia Corp., is well on its way to hit the market. The drug, originally meant for hepatitis B and C, has had a real rollercoaster ride behind it, as during the development years a more promising drug type appeared, albeit a very expensive one. Luckily, Silver says, PharmaEssentia identified a totally new application, a rare blood disease. The company is now partnering with Austria’s AOP Orphan Pharmaceuticals to help it run phase 3 clinical trials for AOP2014/P1101 in Europe. The drug is classified as an “orphan drug,” meaning there are very few patients and 30

thus lower regulatory hurdles. “So far it sounds all good,” Silver notes. “PharmaEssentia has built a new plant to supply the clinical trials in Austria, and once the compound has gained regulatory approval, it will do the manufacturing of AOP2014/P1101 for the market.” • Liver cancer drug PI-88from Medigen Biotechnology is in phase 3 clinical trials, which are being run in Taiwan, mainland China, Hong Kong, and South Korea, making them very expensive. According to Silver, PI-88 could be highly significant for two reasons. “First, Medigen is running the phase 3 trials alone, which is remarkable for a local biotech company because of the costs. Second, it is not clear yet, but there is the expectation that China will flatly approve the ongoing phase 3 clinical trials for PI-88’s commercialization in the Chinese market, so that Medigen won't have to do additional trials in China to back up its phase 3 data.” If this scenario pans out, it would mean that Taiwan biotech companies could do early-stage clinical trials in Taiwan and then follow up with the rest in China, facilitating speedier commercialization of Taiwanese-developed drugs in the rapidly growing Chinese market. But Silver says the real jackpot would be if this approach could enable Taiwan to be a “drug approval portal into China,” not just for drugs from Taiwan but from other countries as well. At this stage, no one is sure if or how this approach would work, adds Silver, as his understanding is that the cross-Strait Economic Cooperation Framework Agreement (ECFA) applies to Taiwanese companies only. “However, if a licensing agreement is formed early enough between the overseas company and their Taiwan partner company to share the benefit of future China market access, then it might work out well for the overseas company when the drug from the Taiwan company gets approved,” he notes. — By Jens Kastner

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Whatâ&#x20AC;&#x2122;s in the pipelines?

photo : itri

Selected pipelines of small molecules as of November, 2013. Company

Compound

Indication/ clinical trial status

TaiGen

TG873870

Diabetic foot infection/ 2; community acquired pneumonia / New Drug Application (NDA) in Taiwan and China

TG-0054

Stem cell transplantation & other potential indications/ 2

TG-2349

Hepatitis C/ 1

Medigen

PI-88

Hepatitis virus-related hepatocellular carcinoma after surgical resection

Genovate, CCPC, Nang Kuang, Yung Shin, TTY Biopharm, Taiwan Biotech

DBPR108

Type II diabetes/ 1

TWI Pharmaceuticals

AC-201

Type II diabetes/ 2

Sinphar Group

SCB01A

Solid tumor after standard treatment failed/ 1

PharmEngine

PEP02

Pancreatic cancer/ 3

Panion & BF Biotech

Nephoxil

Sunten

STD07

Hypophosphatemia in patients with chronic kidney disease/ NDA in Taiwan and USA Inflammatory bowel disease/ 1

Selected pipelines of biologics Company

Compounds in pre-clinical stage

Compounds in clinical trials/ status

Glyconex

GNX101 (ovarian cancer), GNX102 (gastric cancer)

GNX08 (colorectal cancer; licensed to Otsuka Pharmaceutical, Japan)/ Investigational New Drug (IND) application (cleared to enter phase 1 clinical trials)

Foutain Biopharma

FB317 (allergy), FB704 (solid cancer, autoimmune disease), FB811 (lymphoma, leukemia), FB825 (allergy), FB928 (cancer)

n/a

TaiMed Biologics

TMB-355 (HIV) / 3, TMB-355 (HIV) / 2

United Biomedical, Asia Mycenax Biotech OBI Pharma

GranNEX (neutropenia) OBI-833

UB311 (Alzheimer's disease) / 2a, UB421 (HIV) / 2 TuNex (rheumatoid arthritis)/ 3 OBI-822 ( breast cancer) / 2,3

PharmaEssentia

PEG-GCSF, PEG-EPO

P1101 (Myeloproliferative diseases) / 2, P1101 (HBV/HCV) / 2

Adimmune

EV71 vaccine / 1

Medigen

H7N9 vaccine; quarta-valent influenza vaccine H7N9 vaccine

Taiwan Advance Bio- pharmaceutical

TATHOXB4

Telomelysin (hepatoma) / 2

source: pei-fen you, researcher, industriaL economics and KnowLedge c enter (ieK), itri

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A Widening Role for Credit Cards Taiwanese consumers are spending more on their credit cards and using them for a greater variety of transactions. BY PHILIP LIU

n what is considered an outstanding performance amid a sluggish economy, the total value of credit-card spending in Taiwan is estimated to have exceeded NT$1.86 trillion (US$62 billion) in 2013, up 5.7% over the NT$1.76 trillion (US$58.7 billion) in 2012 – more than double the rate of growth in private consumption. Figures from the Financial Supervisory Commission (FSC) show actual credit-card spending of NT$1.737 trillion (US$57.9 billion) for the first 11 months of last year. Monthly card spending repeatedly set new records during 2013, with the amount exceeding NT$170 billion (US$5.7 billion) in the three months of January, June, and October. In past years, a monthly value of just NT$150 billion (US$5 billion) was regarded as exceptional. Final figures for the fourth quarter are expected to show card spending value as having hit an all-time new high, as card-issuing banks competed with one another to offer handsome incentives to cardholders to make purchases with credit cards during the peak shopping season. Citibank Taiwan, for instance, provided an extra 1% cash payback to cardholders with NT$5,000 (US$167) or more in accumulated card spending in December, as well as a 1.88% cash payback for domestic

spending or 2.5% for overseas spending for high-end Infinite card holders. E-commerce websites also offered attractive incentives to encourage card spending during the season. Yahoo!Kimo joined hands with some 20 banks to encourage consumers to make online purchase with credit cards. Consumers with credit cards issued by E. Sun Bank, Cathay United Bank, Taishin Bank, and Standard Chartered, for instance, were entitled to 1,000 bonus points for each card with expenditures reaching NT$1,000 (US$33.30) or more through the website. In addition, card-issuing institutions provided attractive bonuses, such as traveling cases and cash payback, to encourage new cardholders to activate their cards promptly. The growth in 2013 continues the trend of steady expansion in the credit-card business in Taiwan in recent years. According to FSC data, the amount of credit-card spending jumped 12.7% to NT$1.54 trillion (US$51.3 billion) in 2010, before rising 8.5% to NT$1.67 trillion in 2011 and 5.6% to NT$1.76 trillion in 2012. As of the end of October 2013, the number of credit cards in circulation, issued by 36 creditcard issuing institutions, had surpassed 36.3 million, up 18% over the 30.7 million at the end of 2010. The number of “effective cards,” or cards in actual

use, had reached 22.9 million. In the number of effective cards, CTBC Bank (formerly known in English as Chinatrust) is the champion, boasting 3.87 million effective credit cards as of the end of September. Next are Cathay United Bank with 2.59 million, Citibank (Taiwan) with 2.38 million, E. Sun Bank with 2.3 million, and Taishin Bank with 2 million. The steady growth in credit-card spending reflects the tendency among Taiwan consumers to use “plastic” for an ever wider range of transactions – not just for the purchase of daily-life items, but increasingly for a variety of other outlays, such as payment of utility fees, school tuition, insurance premiums, and taxes. In doing so, they are taking advantage of such options as deferred payment, installment payment, and attractive incentives, notably cash paybacks, offered by credit-card issuing institutions. In view of the prevalence of credit cards, more and more major commercial enterprises are cooperating with credit-card issuers in promoting cobranded credit cards, often sparking some fierce competition. Last August, for example, Cathay United Bank successfully contracted with Costco Taiwan to issue a co-branded credit card, taking over that role from CTBC Bank upon expiration of the latter’s

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10-year contract with Costco at the end of 2013. The contract offers abundant business opportunities for Cathay United Bank, as Costco Taiwan has annual sales of over NT$50 billion (US$1.67 billion). The spending on the card averages NT$3,000-$4,000 (US$100-$133) per transaction, and average monthly spending per customer exceeds NT$10,000 (US$333). To encourage the 900,000 Costco-CTBC cardholders to sign up for its card, Cathay United Bank offered a cash payback of NT$500 (US$16.70) when the new card was used for the first time for a transaction of at least NT$999 (US$33.30). To retain a foothold in the Costco market despite loss of the co-branding contract, CTBC Bank joined forces with American Express in issuing a “CTBCAmerican Express Global Travel Card,” since aside from its own co-branded card, Costco accepts only American Express cards. In an unprecedented move by American Express, customers who obtained the new card by the end of 2013 are permanently exempted from having to pay an annual fee – normally at least NT$1,800 (US$60).

CTBC-Pxmart linkup CTBC Bank soon pulled off another coup by inking a 10-year contract with Pxmart, Taiwan’s leading supermarket chain, which has annual sales of NT$70 billion (US$2.3 billion). In a major reversal of the longstanding Pxmart policy of accepting only cash (for the sake of saving the handling fee the card companies charge merchants), the deal allows the seven million Pxmart members to use CTBC cards to pay for their purchases at the stores as of the start of this year. To gain that agreement, however, CTBC pledged to forgo the handling fee, usually set at 1.7% of the transaction amount, the first time a local bank had agreed to such an arrangement. Pxmart reportedly was persuaded by the Central Bank to abandon the cash-only policy, which had necessitated handling some 18 million coins a m o n t h t o m a k e c h a n g e o n p u r-

chases at the 680 Pxmart outlets, where the average transaction comes to just NT$300. Despite the absence of a handling fee, the deal should be attractive for CTBC in terms of interest payments on installment purchases and revolving credit, as well as opportunities for developing business with new cardholders among Pxmart customers for unsecured loans, insurance, mortgages, and wealth management. Due to the keen competition, cardissuing institutions have seen profit margins shrink for most co-branded cards, although a notable exception has been cards co-branded with department stores. For those cards, spending averages NT$12,000 (US$400) a month, 1.5 times the overall market average of NT$8,000 (US$267), according to banking sources. The most important period for credit-card spending at department stores is their anniversary sales campaigns, generally held in the third quarter. At that time, stores offer gift vouchers, often amounting to 10% of the purchase value, on spending exceeding a certain amount, typically NT$5,000, in a given day. The practice induces many rich customers to engage in a shopping spree, mainly for jewelry, gold, chinaware, and other luxury goods –

in many cases for amounts exceeding NT$1 million. At Sogo Department Store, the 12-day anniversary sales campaign in November in recent years has accounted for some 17-18% of the entire year’s revenue. In order to achieve higher margins by tapping the huge potential represented by their most affluent customers, card-issuing institutions have also been vigorously promoting toplevel Infinite cards. Li Tseng-chang, chairman of Shin Kong Bank, notes that the average monthly spending on such ultra-premium cards reaches NT$40,000-$50,000 a month, compared with NT$6,000 for ordinary cards. Although there are fewer than 100,000 topnotch credit-card holders at E. Sun Bank, Cathay United Bank, and Shin Kong Bank – the top-three issuers of such cards – those accounts generate over NT$50 billion in card spending a year. A total of some 400,000 topnotch cards have been issued by 15 institutions, including 44,000 by E. Sun Bank, 39,000 by Shin Kong Bank, and 30,000 by Cathay United Bank. Between July 2012 and June 2013, holders of topnotch cards from E. Sun Bank, the market champion, racked up NT$22 billion of card spending or over

Growth Rates of Credit-Card Spending Value in Taiwan Year

Card-spending value (NT$1 trillion)

Growth rate (%)

1.54 1.67 1.76 1.86

12.7 8.5 5.6 5.6

2010 2011 2012 2013 (forecast) source: financial supervisory commission

Status of Five-Largest Credit-Card Issuing Banks Bank

No. of effective credit cards (million cards)

CBTC Bank Cathay United Bank Citibank (Taiwan) E. Sun Bank Taishin Bank

3.87 2.59 2.38 2.3 2.1

Outstanding amount of revolving credit (NT$ billion) 15.9 14.7 17.9 11.5 10.6

source: financial supervisory commission

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TAIWAN busINes s

NT$50,000 monthly per card. Most banks limit the issuance of Infinite cards to people with annual income of more than NT$2 million, although for Citibank the threshold is NT$1.4 million. Topnotch card holders are entitled to various types of special treatment, including higher cash payback, higher insurance coverage for overseas travel, and customized services such as the arrangement of private flights. In order to differentiate its service, E. Sun Bank donates 0.03% of spending by topnotch holders for the construction of libraries at elementary schools in remote areas. Despite the name “Infinite,” most banks impose a credit limit, usually around NT$700,000, on the topnotch cards, although the quota can be raised on short notice for specific needs, such as overseas-study tuition or auto purchases. The banks have been opposing a proposal by some legislators to cut the legal maximum lending rate to 16%, down from the current 20%. The measure was already approved by the Judiciary and Organic Laws and Statutes Committee of the Legislative Yuan in late November. Lawmakers advocating the change contend that the existing interest ceiling is far too high at a time when the one-year time deposit rate has dropped to around 1.35%. The maximum lending rate is applicable mainly to users of credit-card revolving credit, or those who choose not to pay their monthly credit-card bill in full. As of the end of October, there were some 1 million such credit-card debtors, subject to 15-20% interest rates for a total of NT$120.2 billion in outstanding revolving credit. The peak was NT$490 billion in November 2005. Bankers note that after taking risk into account, the cost of carrying such credit-card debt comes to some 16-17%; they warn that should the ceiling be cut to 16%, many banks would stop dealing with such marginal customers, forcing them to resort to underground lenders. FSC chairman Tseng Ming-chung has said the FSC’s bottom line is to lower the rate ceiling to 18%, in order to alleviate the impact. 34

Payment by smartphone Taking advantage of the growing popularity of smartphones (Taiwan currently has 3.5 million users), banks are also beginning to introduce systems to enable customers to use smartphones as a payment vehicle. In cooperation with Chunghwa Telecom (CHT), for instance, eight banks – E. Sun, CTBC, C a t h a y U n i t e d , Ta i s h i n , C o s m o s , Yuanta, Taiwan Cooperative, and Bank of Taiwan – are rolling out a “QR Code mobile credit-card payment” service. Users of the new service must be cardholders of the eight banks and mobile-phone customers of CHT. After downloading the QR Code App from the CHT website and registering for QR Code usage by submitting creditcard information, they will be able to make purchases at either physical or virtual stores simply by taking a picture of the QR Code on the product and designating the credit card to be used via an online connection (up to five credit cards can be stored on the smartphone). Security is not a problem, since customers don’t have to provide creditcard information during the transaction process and the authenticity of the customer’s identify is certified by both CHT and the card-issuing bank. During the half-year trial period that started in early September, the maximum amount of spending is capped at NT$50,000 per transaction, and only a limited number of merchants – mainly in the fields of transportation (taxis and domestic flights), cosmetics, gaming,

e-commerce, insurance, travel, and hotels – are participating. In another innovation involving QR Code payment, both CTBC and Citibank are cooperating with Viewshow Cinemas, a leading multiplex in Taipei, to allow credit-card holders to use their smartphones to book and pay for tickets and gain admission at the theatres. Hey Song, a major beverage company, has also introduced an automated vending machine that accepts QR Code payment as well as cash and EasyCard. QR Code is regarded as a transitional method of mobile credit-card payment before NFC (near field technology) gains popularity as a means of mobile-phone credit card payment. The FSC has authorized seven banks, including Cathay United and E. Sun, to launch NFC credit-card service, and each of them has issued 1,000 NFC credit cards in cooperation with CHT during the trial period. The card holders must have a mobile phone equipped with NFC functionality and must be a customer of CHT, which will provide them with a SWP-SIM card for their mobile phones. After approval of the credit-card application, the card will be transmitted to the phone via OTA (over the air), rather than by delivery of a physical card. The card holders will then be able to use the mobile phones to make purchases from some 25,000 merchants equipped with relevant cardreading machines. At present, signatures are unnecessary on NFC mobile phone transactions, but card holders have to key in a password for transactions worth NT$3,000 or more. The credit limit is currently set at NT$50,000. Meanwhile, Far Eastern Bank and Taipei Fubon Bank are also promoting NFC mobile credit cards, in cooperation with their affiliates Far EasTone Telecom and Taiwan Mobile, respectively. Domestic banks are optimistic about the business prospects for NFC mobile credit cards, citing a report from Gartner, the market research organization, which put global NFC transaction value at US$235.4 billion in 2013, a jump of 44% from the year before.

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behind the news

Evaluating China’s Planned Economic Reforms The Beijing leadership seems determined to put the economy on a sounder long-term footing. Given the strong cross-Strait trade and investment connection, that is largely good news for Taiwan.

BY JANE RICKARDS

Over the last three decades, h i n a ’s 6 0 - p o i n t the mainland’s economy has economic reform progrown at breakneck speed by gram announced after following the growth model the third plenary session of introduced by then President the Chinese Communist Party Deng Xiaoping in the 1980s. It Congress last November – emphasized export-led growth together with the excitement and investment, and enabled generated by the planned China to build an industrial Shanghai Free Trade Pilot base by adopting technology Zone – has raised a number and manufacturing processes of questions for a Taiwan from foreign countries. economy that has become Taiwan played a quiet but heavily reliant on cross-Strait Shanghai Municipality Communist Party Secretary Han Zheng, trade and investment. left, inaugurates the Shanghai Free Trade Zone during a ceremony key role in making that possible. Over this period, large Is the new Chinese lead- in the Pudong district. photo : ap/ c arlos barria, p ool numbers of Taiwanese entreership under president Xi preneurs moved to China to Jinping genuinely committed make it the main center of their business operations, introto undertaking the proposed reforms, considered the most ducing modern manufacturing techniques and providing wide-reaching since China’s opening to the outside world in employment for masses of Chinese workers. These Taishang 1978 – or is the program mere political hype? Assuming that helped build industries ranging from shoemaking to comthe leadership is serious in its intentions, are the plans for puter assembly, and thanks to sharing a common language, reform likely to succeed in the face of certain resistance from the mainlander Chinese were able to learn quickly from their entrenched interests? And either way, what is the expected example. The Chinese government also did its part by conimpact – for good or ill – on Taiwan’s economy? structing modern infrastructure, such as roads and airports. Most analysts appear convinced that the political leaders Now the easiest technologies to absorb have already been in Beijing have concluded that China has no option but to adopted. In an economic environment that depended on significantly alter the country’s economic direction, building a cheap and abundant workforce, salaries have risen suba more modern economy powered chiefly by consumption stantially and many parts of the country even face labor rather than investment-driven growth. Many economists, shortages. China therefore needs to move to value-added both foreign and Chinese, predict enormous economic probmanufacturing, such as branding, along with the developlems for China – even collapse – unless it adopts a new model ment of a consumer- and services-driven economy. It needs to of growth.

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behind the news

greatly boost consumption, which amounted to only around 36% of GDP in 2012, compared with 69% for the United States and over 50% for India. To add to the challenge, areas of the Chinese economy are severely dysfunctional. Infrastructure and industrial capacity is often seriously overbuilt, and public and private debt has been mounting sharply. Since ambitious party and government leaders at the local level know that their careers depend on the GDP growth they generate, they strike up deals to make land available for development projects, whether or not the projects make economic sense. This mad rush to boost GDP figures has led to barely inhabited ghost towns, heavy pollution and other environmental degradation, and property bubbles. Huge overcapacity exists in many sectors, including steelmaking and solar-panel manufacturing. In addition, there are growing fears that borrowers will be unable to repay debt and that banks will curtail lending, causing investment to plummet. Further debasing the value of the economy are widespread corruption and the inefficient operations of the behemoth state-owned enterprises (SOEs) that are propped up by government subsidies and favors. Given all of these factors, the political leadership clearly recognizes “there is no choice but for China to make significant reforms,” says James McGregor, the former head of Dow Jones in China who is now a prominent consultant and author on the Chinese economy. To achieve these goals, the top leaders will need to overcome vested interests, such as the SOEs and local governments, and ultimately party officials and “princelings” seeking to hang onto the power they exert over these fiefdoms. In a recent speech in Taipei, McGregor observed that former President Hu Jintao and former Premier Wen Jiabao also wished to pursue economic reforms, but were stymied by just such internal opposition. He sees Xi Jinping as much better positioned to keep opposition in check and push his program through. One reason is Xi’s greater prestige in view of his strong family background. He has also been taking steps to shore up his control over the party, establishing himself as the paramount leader in a way that hasn’t been seen since Deng Xiaoping was overseeing equally radical reforms over three decades ago. For example, Xi is bringing much of the key decisionmaking apparatus under his personal command, including a new national security council that McGregor views as being as much about intimidating underlings into toeing the party line as it is about international relations. Although economic structures may become more diverse, Xi is likely to enforce more ideological conformity to ensure that everyone in the party is working towards the same goals. “Xi is using Mao’s tools to achieve Deng’s aims,” says McGregor. “He is going left to get to the right.” China watchers say the most important item in the 60-point plan is its announcement that the market will be given a “decisive” role in allocating resources, a remarkable statement for a Communist single-party state. “The government is now (officially) a second-best allocator of resources,” 36

Standard Chartered Bank notes in a report analyzing the reforms. Among the widespread ramifications is that prices will be set by the market, with utility prices expected to come first, and state subsidies will be limited. In addition, with private property rights respected, land cannot be expropriated if the owner is unwilling to sell. These changes should help resolve the economic distortions that were introduced by misallocated investment.

Financial liberalization Much of the content of these policy proposals is still vague. Nevertheless, they include financial liberalization, such as easing controls on renminbi and interest rates; tax reform such as expanding the base of the value-added tax and resource tax, as well as revising the property tax system; land reform to encourage farmers to move to the cities to create a larger urban middle class; and broader social welfare benefits. China is also easing its one-child policy and abolishing labor camps. Steve Lin, vice minister of Taiwan’s Mainland Affairs Council, says financial liberalization should be one of the easier tasks, but the pace of implementation is unclear. For example, the People’s Bank is likely to soon unveil a deposit insurance system to pave the way for freeing up deposit rates. Currently those rates are still subject to administrative caps in order to protect depositors, since some banks could fail in a more open regime. The plans also call for more privately owned banks and greater freedom for companies to issue foreign debt and do cross-border transactions. Further, a new registration system for IPOs is envisioned to counter corruption in the existing approval system. Some of the changes could be painful. For example, higher interest rates could bankrupt some firms that have been dependent on easy credit. Many of the reforms could take years to implement, with the Chinese government setting a timeline of 2020 for completion. Urbanization and land reform are likely to be slow, for example. China plans to relax the household registration or hukou system to encourage farmers to leave their home villages and move to cities. Under the current system, migrants to the cities are barred from access to public services such as health care and education. The government hopes that around 60% of China’s 1.4 billion people will be urban residents by 2020, up from around 51% at present, Reuters reported. But too rapid an influx of migrants, without an adequate welfare net, could create slums and cause political instability. Chuang Yih-chyi, dean of the college of social sciences at National Chengchi University and an authority on the Chinese economy, predicts that local government heads will try to resist the push for reform out of fear not only of losing their power but of losing revenue. Tax receipts go mainly to the central government, so local governments tend to rely on shadow banking and land sales for financing, he says. In the past, local governments have been a primary engine of growth in China. But they have also been responsible for considerable waste, red tape, and corruption. “I doubt it will be a smooth

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behind the news

transition,” Chuang says, adding that conflict arising between local governments and the central authorities will not be obvious to outsiders. In addition, some economists fear that the plans to give farmers more control over the land they occupy could spark a debt crisis by reducing local governments’ ability to raise funds through the sale of land, Reuters reported. Further, tax reform is likely to be slow and it is still unclear how it can be accomplished in ways that enable local governments to fund healthcare and other services for the new city dwellers without having to sell land to raise revenue. Another area that could prove an obstacle to reform is the SOE sector. The success of the reform program, some analysts say, may depend on whether SOEs continue to get preferential treatment and dominate the market to the extent of creating an unfair playing field. Chuang Chaojung, director of the Chinese industry and economic research center at the Taiwan Institute of Economic Research, estimates that SOEs account for around 50% of China’s GDP, giving them great economic influence. The plans call for SOEs to hand 30% of their profits to the state by 2020, which should help fill government coffers. But in other respects the SOE strategy is unclear, notes Standard Chartered Bank. The 60-point plan does not include fundamental changes in SOE operating models or ownership structures, but it does call for measures to improve efficiency. While describing the near-term direction as “murky,” the bank says the ultimate success or failure of the program depends on how aggressively the measures are pushed through. National Taiwan University economist Chen Tain-jy, a former head of Taiwan’s Council for Economic Planning and Development (CEPD), says a decisive factor in the reform program’s success will be the degree of independence from the Communist party that China gives the judiciary. To achieve China’s objective of “marketization,” says Chen, it will be critical for rule of law to replace personal connections (guanxi) and bribery. Pointing to the Kuomintang’s past difficulties in separating the judiciary from the party, Chen predicts that the transition will be difficult. Overall, says investment bank UBS, the decisions following the third plenum “may have a negative impact on short-term growth and will likely be painful for some sectors, but we believe the initial set of reforms will be likely to be somewhat more pro-growth.”

The role of Shanghai The launching last September of the free trade pilot zone in Shanghai is seen as related to China’s long-held ambitions for Shanghai to become an international financial center similar to London and New York. While most of the detailed plans for the zone have not yet been announced, analysts say the Chinese government views the area as a test bed for profound reforms to China’s economic system, including greater liberalization of currency, interest rates, and the movement of capital, as well as trade and logistics. If the zone is successful,

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The 28-square-kilometer Shanghai Pilot Free Trade Zone. photo : China Wiki

it is likely to be broadened in scope and replicated in other cities such as Tianjin and Shenzhen. The Shanghai FTZ is as much of an experiment for China as the special economic zones (SEZ) were in the 1980s, but while the old SEZs focused on manufacturing and tax breaks for exporters, the new Shanghai FTZ will also cover financial services. The Standard Chartered report notes that it might even eventually develop into an offshore financial center like Hong Kong. If the authorities restrict the financial services to doing business only within the zone, the impact will be relatively small, the bank says. But if its financial services are freely available to any Chinese company that sets up a representative office in the zone, it would be equivalent to China having opened up its capital market. MAC’s Lin predicts that the reminbi will not be completely free to move in and out of the country, but will be allowed to flow freely between the FTZ and certain designated areas Liu Meng-chun, director of the center for economic forecasting at Taiwan's semi-official Chung-Hua Institution for Economic Research, says China’s restrictions on access to internet sites could affect the success of the Shanghai FTZ, since international financial services rely on the unimpeded flow of information. More promising is the FTZ’s negative listing approach to foreign direct investment, meaning that unless an activity is explicitly prohibited, it is open to foreign investment (as opposed to a positive list that identifies which activities are approved). NTU’s Chen describes this policy as a “watershed,” noting that while the FTZ negative list does not differ greatly from the positive list currently in force in the rest of China, “it is a very important change in mindset towards foreign investment, and once they change their thinking, other things can change.” Foreign firms are also permitted to take larger stakes in joint ventures in the FTZ than in the rest of China, and Standard Chartered expects the FDI regulations and approval process to be loosened further.

Impact on Taiwan As for the potential significance of the reforms for Taiwan, analysts say it all depends on how the island chooses to make use of the new business opportunities created. The reforms

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behind the news

The Great Hall of the People was the site of the Third Plenum. photo : Wikipedia

currently do not seem likely to create direct head-to-head competition between Taiwan and China in specific sectors or situations. For example, the Shanghai FTZ is not seen as competing with Taiwan’s proposed Free Economic Pilot Zones, as the former is focused on financial reform and the latter chiefly on value-added manufacturing. MAC’s Lin says he sees potential for both cooperation and competition. As an example of potential cooperation, Lin notes that Taiwan hopes to become an offshore RMB center, similar to Hong Kong. While total deposits have already reached more than 120 billion RMB since a currency clearing system was permitted in January, Lin says Taiwan still needs to acquire a larger stock of RMB for this plan to be successful. If China were to allow the free movement and exchange of RMB between the Shanghai FTZ and Taiwan (or with just the proposed pilot zones), it would greatly help Taiwan in reaching this goal. Taiwan has raised this idea with the Chinese central bank several times, so far without success. An area of competition that is giving the Taiwan government a headache, however, is that between Shanghai and airports and sea ports in Taiwan, says Lin. A few years ago, Taiwanese transportation officials outlined an ambitious plan to make the Taiwan Taoyuan International Airport a gateway to China and an East Asian hub. A major rationale for the plan was alleviating congestion in the Beijing and Shanghai airports by having passengers from China’s west and outlying regions transit through Taiwan on their way to places such as the United States. To make the idea feasible, Beijing needed to liberalize its policies in issuing travel documents to its citizens, as Chinese passengers transiting in Taiwan would need both permits to travel to Taiwan and passports to go on to their final destination. Currently Chinese tourists visiting Taiwan are not allowed to take passports, which means they cannot travel through Taiwan to another country. Up to now, Lin reports, China has been reluctant to alter its procedures. Part of the reason is economic. Determined to make Shanghai a hub, China does not welcome the rerouting of business through Taiwan. But another reason relates to politics. Because the government in Beijing refuses to recognize Taiwan (or the Republic of China) as a sovereign entity, it is unwilling to allow Chinese tourists to carry passports when they travel to Taiwan, as it would imply that Taiwan is an international rather than domestic destination. Fairer competition and a less dominant role or less protec38

tion for SOEs will also benefit Taiwanese companies in China. Instead of concentrating mainly on producing for export, notes NTU’s Chen, the Taishang are now trying to penetrate the domestic market but frequently complain of discrimination. Sometimes the local companies they are competing against in seeking projects or approvals from local governments are owned by the local governments themselves or by influential local interests they are closely associated with. If the Chinese government really wants to reduce government intervention and let the market play a greater role in resource allocation, Taiwan companies will surely benefit, Chen says. Greater judicial independence and fairer courts could also help Taiwanese businesses protect their intellectual property and commercial secrets from Chinese theft, currently a common complaint, he adds. And bringing an end to problems of overcapacity, such as the recent glut of solar panels, which drives down prices in international markets, would be good not just for Taiwan, but for the global economy, Chen says. As China’s industries become more developed, they are relying on Taiwan less than before as a source of materials and components. But McGregor notes that China’s efforts to promote advanced “indigenous innovation” are still not taking off, partially because talent and projects are picked by central government bureaucrats. With its free democratic system, good educational institutions, and entrepreneurial spirit, Taiwan still enjoys many advantages, but it cannot afford to “sit back and be slack,” says McGregor. He suggests that Taiwan seek to play a pioneering role in new tech trends such as 3-D printing. The changes in China also offer Taiwan huge opportunities to get a foothold in the mainland’s nascent service sector. Taiwanese companies have the benefit of the same language and cultural background as China, as well as practical experience, as 70% of Taiwan’s GDP is already generated by services. But, says TIER’s Chuang, the failure of the Legislative Yuan so far to ratify a services agreement signed with China in June shows that many political obstacles remain. If services are liberalized, it would lead to a two-way flow of talent across the Taiwan Strait, but the opposition to the services pact reflects that many in Taiwan are still reluctant to see mainlander businesspeople take up residence here. Taiwan needs to resolve its own historic baggage with China before it can really take advantage of new opportunities, says Chuang. “The issue is not with China,” he observes. “The issue is with Taiwan.”

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Detailed Findings

2014 Business Climate Survey Summary of Results

Results of the online survey conducted in November and December 2013 by Independent Marketing & Research Limited on behalf of AmCham Taipei. Of the 423 voting representatives (mainly CEOs) from AmCham member companies who were invited to take part, 220 did so for a 52% response rate. The sample covered a wide spectrum of companies by size of employment â&#x20AC;&#x201C; from the very small to the very large. The primary business focus of more than 70% of the respondents is to supply goods or services to the Taiwan domestic market.

American Chamber of Commerce in Taipei Suite 706, Worldwide House 129 MinSheng East Road, Section 3, Taipei 10596, Taiwan Tel: +886-2-2718-8226 Fax: +886-2-2718-8182 www.amcham.com.tw

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2014 Business Climate Survey

A good environment, but still in need of improvement Message from 2014 AmCham Chairman Thomas Fann

For its 2014 Business Climate Survey, AmCham Taipei invited the 423 voting representatives from our member companies (mainly the CEOs) to answer a series of questions about the investment environment in an online questionnaire. I would like to thank the 220 members who took the time to participate in the survey, as well as Gordon Stewart of Independent Marketing & Research for his professional assistance. The high response rate of 52% reflects members’ appreciation of the importance of this exercise. The results provide AmCham with valuable information to help shape its policies and advocacy positions to reflect the needs and interests of its membership more effectively. The findings are also useful reference for the Taiwan government in understanding the views of foreign investors as a guide in policymaking. In general, the results of this survey were largely in line with those released each year since 2011. Respondents consider Taiwan to be a good place to do business, with an industrious and well-educated work force, and nearly all operations are profitable. Company executives are even more positive about the quality of life, rating Taiwan as a safe and friendly environment in which to live. At the same time, the 2014 survey reflects heightened dissatisfaction with bureaucratic obstacles to healthy business operations. More specifically, the respondents cited the need for greater consistency in regulatory interpretations, adherence to the rule of law, and transparency in the regulatory process. They also raised increased concern about the effect of political unrest on the economic climate. In the survey, the AmCham business leaders expressed satisfaction with the Economic Cooperation Framework Agreement (ECFA) Taiwan has entered into with China, and described the cross-Strait services agreement now before the Legislative Yuan as a positive development for both sides. In addition, they urged the Taiwan and U.S. governments to conclude a Bilateral Investment Agreement, identifying a BIA as bringing distinct advantages for their businesses. And they strongly supported the stated intention of the Taiwan government to seek admission to the embryonic Trans-Pacific Partnership when the TPP is opened to a second round of membership. AmCham was heartened by President Ma Ying-jeou’s 2014 New Year’s Day Address, which was devoted entirely to plans for revitalizing the economy, including the promotion of Free Economic Pilot Zones, the encouragement of startups, and steps to assure Taiwan’s integration in the regional and world economies. He recognized the importance of readying Taiwan for entry into the TPP, both as a means of spurring needed economic reform and to secure Taiwan’s place in the international trading community. If these initiatives can be carried out expeditiously, I am confident that the 2015 Business Climate Survey will reflect a strong increase in optimism among foreign investors in Taiwan’s economic outlook and the prospects for their businesses.

Thomas Fann 2014 AmCham Taipei Chairman

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Executive 2014 business Summary climate survey

Key Indicators

81% 74%

81%

72% 66% 65%

70%

69% 59%

63% 54%

52% 43%

56%

54%

48%

2010 2011 2012 2013 2014

Profitability

Forecast for Revenue & Profit Growth

Investment

5-Year Business Outlook

Major Takeaways • Although most (65%) AmCham companies taking the survey report that 2013 was very or relatively profitable, business conditions last year were not as good as in 2010-11. • Most companies (63%) expect their revenue and profits to grow in the coming year, but that is fewer than the 69% last year or 81% for 2011. • At 44%, the proportion expecting no change in their company’s level of investment in Taiwan in the coming year was the highest in the four years of the survey. Only 7%, the lowest figure over those four years, anticipate a substantial increase in investment this year. • The level of optimism regarding Taiwan's five-year business outlook was statistically about the same as last year. The 54% expressing optimism was just slightly less than the 56% last year, but well below the 71% of 2012 and 81% of 2011. • “Governmental bureaucracy” was cited as the number-one factor impacting business operations, along with related factors such as “inconsistent regulatory interpretations” and “inconsistent application of the rule of law.” • Increased concern was also shown over the level of political unrest in Taiwan. “Reducing political turmoil” was cited as a key thing the government could so to improve the business climate. • In 2013, 43% of responding companies increased employment levels, and 41% expect to do so this year. Difficulty recruiting sufficient talent is seen as a problem, however. • In general, Taiwan’s work force is viewed very favorably. The major shortcomings are the degree of creativity, initiative, and international mindedness. • In terms of cross-Strait economic relations, ECFA continues to be seen has having a positive effect on Taiwan, and the China-Taiwan Services Agreement is regarded as a win-win proposition for both sides of the Strait. • More than half (53%) of respondents see the lack of a Bilateral Investment Agreement between Taiwan and the U.S. as a disadvantage for their business, and urge the two governments to negotiate a BIA. • AmCham business leaders consider it important for Taiwan to join the Trans-Pacific Partnership. A full 83% of respondents urged Taiwan to seek TPP membership, and 63% expressed confidence that Taiwan can meet the pact’s high standards. • The respondents were again highly positive about the living environment in Taiwan. The major defect cited is that Taiwan is insufficiently “English-friendly.”

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2014 Business Climate Survey

2013: Business still in low gear Around two-thirds of respondents said their companies were either “very profitable” (11%) or “relatively profitable” (54%) in 2013. Almost all of the rest merely broke even or were close to it. While few companies suffered large losses, business conditions remained inferior to 2010 and 2011, when respectively 74% and 72% of respondents said they were very or relatively profitable.

■ How would you characterize your Taiwan business' financial performance in 2013? 11% 10%

Very profitable

14%

21% 54% 56% 58% 53%

Relatively profitable

Break-even or Small profit/loss 1%

Relatively large loss

0% 1% 1% 0%

Very large loss

31%

24% 24%

34%

3% 3% 3% 2013

2012

2011

2010 60 %

2014 Forecast: Continued growth A total of 64% of respondents are expecting an increase in the level of both revenue and profits in the coming year – a slight drop from the 66% last year and the 68% in the 2012 survey, but far less than the 82% recorded in 2011. Most of the rest expect conditions to remain the same in 2014, rather than anticipating a decline in either revenue or profits.

■ What is your Taiwan business’ Revenue & Profits forecast for 2014 compared to 2013? (Top responses only) 11% 13% 11%

Substantial growth in both Revenues & Profits

17%

Modest growth in both Revenues & Profits 16%

Remain the same 6% 6%

Modest decline in both Revenues & Profits

6% 0

53% 53%

46% 19%

23%

10% 10

2014 20

54%

2012

2013 50

2011 60 %

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Detailed 2014 business Findings climate survey

Near-term Investment: Still sluggish Of the respondents, 44% – the highest proportion in the four years of the survey – expect no change in the coming year in their company’s level of investment in Taiwan, while 41% anticipate a slight increase and only 7% a substantial increase.

■ What is likely to happen to your entity’s level of investment in Taiwan over the next 12 months? 7%

Substantial increase

11% 10%

16%

Slight increase

41% 42%

33%

38%

No change 4%

Slight decrease

1% 2% 2% 3% 2% 1% 2% 1%

Substantial decrease Don't know/can't say

36% 6%

44%

13%

2014

39% 41%

2013

2012

2011

50%

Looking forward five years This year only 54% of the business leaders say they are either “optimistic” or “slightly optimistic” about the fiveyear business, compared with 56% last year, 71% in 2012, and a high 81% in 2011. Those either “pessimistic” or “slightly pessimistic” came to 18%.

■ How would you describe your five-year business outlook for Taiwan?

17% 19%

Optimistic

28% 29% 37% 37%

Slightly optimistic

Neutral

22%

7% 14%

Slightly pessimistic

26%

16%

10% 2014

52%

29%

4% 3% 1% 3%

Pessimistic

43%

2013 50

2012

2011 60

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2014 Business Climate Survey

What impacts their business? “Governmental bureaucracy” ranked as the factor that respondents said had the biggest impact on their operations, followed by “inconsistent regulatory interpretations.” In the previous three surveys, the number-one item was consistently “changes in local demand,” reflecting the fact that most AmCham member companies focus chiefly on the Taiwan market. In the 2013 survey, “governmental bureaucracy” was ranked third and in 2012 fourth. The change to the top place this year indicates that business leaders are viewing it as a growing problem. Other adverse factors that were frequently cited were inconsistent application of the rule of law, inadequate or outdated laws, insufficient notice before changes to regulations or laws are introduced, differences between local and internationally accepted standards, and inadequate transparency.

■ Which of the following impact your operation in Taiwan, and how much of an impact do they have?

Top Ten Responses Overall 2014 2013

2012

2011

Issues

Ranking Ranking Ranking Ranking

Governmental bureaucracy

Inconsistent regulatory interpretation

Changes in local demand

New in 2014

Lack of transparency

Ability to recruit appropriate new personnel

Changes in employment expenses

Inconsistent application of the Rule of Law 5

New in 2013

Inadequate/out-dated laws Insufficient notice before changes to regulations or laws are introduced Differences between local and internationally accepted standards

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Detailed 2014 business Findings climate survey

What needs to be done The survey asked: “What are the main things the Taiwan and U.S. governments could so in the next 12 months to help business?”

■ Main things the authorities could do to help. (Ranked in order)

Taiwan Government • Reduce political turmoil in Taiwan • Simplify government bureaucracy • Devise plan to stimulate local demand • Assure consistent application of the rule of law • Remove gap between local and internationally accepted standards

USA Government • Negotiate and sign a Bilateral Investment Agreement with Taiwan • Conduct TIFA talks annually with Taiwan • Reduce corporate tax rates • Reduce personal tax rates • Facilitate Cabinet-level visits to Taiwan.

• Reduce personal tax rates

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Detailed Findings

2014 Business Climate Survey

The major worries confronting business With regard to the major risks facing their operations in the months and years ahead, most respondents cited the threat of economic slowdowns, whether in Taiwan (61%), globally (58%), or in major overseas markets such as China (37%), the U.S. (34%), and Europe (25%). Besides economic slowdowns, the number-one concern is “increased domestic political unrest” at an all-time high of 40% (it was only 22% last year). Among other major concerns are “increased governmental interference” and “lack of human resources.”

■ What are the major risks facing your entity in the coming years? Economic slowdown in Taiwan

54%

61%

58%

64%

58%

Global economic slowdown 22%

Increased domestic political unrest

40%

32% 33%

Economic slowdown in Mainland China

37%

28%

Increased Governmental interference

28%

Lack of human resources Economic slowdown in US

27% 25%

Economic slowdown in Europe Rising domestic inflation Taiwan Dollar (TWD) depreciation Decreased exports

10% 12%

Taiwan Dollar (TWD) appreciation

34%

42% 41%

37% 39%

34% 35% 35% 36% 34%

41% 40%

35% 36%

18% 16% 20% 11% 15% 17% 22%

Rising Taiwan unemployment

Increased imports

20% 26% 19% 22% 18% 18% 24% 18% 18% 16% 15%

3% 2% 2% 2%

2014

72% 74% 69%

2013 60

2012 70

2011 80 %

Human Resources continues to be a big issue Deficiencies in the quantity and quality of available human resources are one of the higher risk factors seen as confronting Taiwan-based businesses in the future. We asked our corporate leaders about their impression of the quality of the available human capital in Taiwan.

■ How would you describe the quality of available Human Capital in Taiwan?* Hardworking Very trustworthy Extremely well educated Very loyal Easy to develop/train Highly productive High degree of EQ Easy to retain Well-rounded English-language skills Of 'World class' standard High creativity Great deal of initiative Easy to recruit -50

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100

150

200

* Net difference of positive scores minus negative scores

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Employment trends 2014 business climate survey

AmCham Taipei member companies are hiring

During 2013, 43% of the AmCham companies surveyed increased their personnel numbers, either substantially or slightly. Another 39% reported no change. Interestingly, it was the larger companies (more than 500 full-time employees) who were most likely to increase their workforce. Member companies in the healthcare, hotel and restaurant, and retail sectors showed the most hiring activity.

â&#x2013; 2013 Changes in Employment Level

36%

16%

No change 39% Increased slightly 36% Increased significantly 7%

39%

Decreased significantly 1% Decreased slightly 16%

In 2014, according to the survey results, 41% of the companies plan to increase their headcount. Again, it is the larger companies who express the intention to recruit more personnel. Companies in the legal services, management consulting, healthcare, and human-resource consulting sectors are the most likely to to say they will increase employment.

â&#x2013; 2014 Intentions for Headcount 8%

1% 2% Remain the same 49% 39% 49%

Increase slightly 39% Increased significantly 2% Dont know/cant say 1% Decreased slightly 8% Decrease significantly 0%

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Cross-Strait economic relations

2014 Business Climate Survey

AmCham company executives still bullish on ECFA. The Economic Cooperation Framework Agreement (ECFA) between Taiwan and China continues to be viewed in a positive light. The proportion of respondents seeing it as having a “very positive” effect on Taiwan is 13%, the same as last year, while 54% see it has having “some positive” effect, down from 60% a year ago.

■ ECFA effect on my business 4% 5%

Very Positive Effect

15%

40%

Some Positive Effect

38% 37%

Neither Positive nor Negative 2% 3%

Some Negative Effect

1% 2% 1% 2%

Very Negative Effect

27%

Don't Know/Can't Say

44%

42% 41% 41%

9% 10%

2014

7% 8% 0

2012

2013

2011

■ ECFA effect on Taiwan 13% 13%

Very Positive Effect

30%

40%

54%

Some Positive Effect

46% 11%

Neither Positive nor Negative

3% 4% 2% 5% 1% 1% 3% 2%

Some Negative Effect Very Negative Effect Don't Know/Can't Say

2% 0

11%

13%

9% 9%

12%

2014 20

■ China-Taiwan Services Agreement The cross-Strait Services Agreement (already negotiated and currently being deliberated upon in the Legislative Yuan) is regarded as a win-win proposition. Asked whether the Agreement would be good for both Taiwan and China, 69% of respondents said yes.

60%

49%

2012

2013

2011 60

Don’t know 17% No! 14% Yes! 69%

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2014 BIA/TPP business climate survey

■ Effect on my business of a lack of a Bilateral Investment Agreement between Taiwan and the U.S.A. More than half of respondents see the lack of a Bilateral Investment Agreement between Taiwan and the U.S. as disadvantageous for their business. Among them, 9% see it as a major disadvantage. 9% 9% 8%

Major disadvantage

25%

Disadvantage 21%

Slight disadvantage

22%

18%

Not a disadvantage Don’t Know/Can’t Say 0

24%

21%

18%

29%

23%

25%

2013 2013 2012

27%

22%

■ Effect on Taiwan of a lack of a Bilateral Investment Agreement between Taiwan and the U.S.A. 19%

Major disadvantage

22% 22%

34%

Disadvantage

40%

17%

Slight disadvantage

11%

6% 6% 7%

Not a disadvantage Don’t Know/Can’t Say

2013 2013 2012

24%

16% 0

44%

20% 20

■ What should be Taiwan's position regarding the Trans-Pacific Partnership?

Is Taiwan capable of meeting the high standards required for membership into the TPP?

Should Taiwan pursue membership of the TPP? No! 2%

No! 13%

Don’t know 13%

Don’t know 15%

Yes! 65%

Yes! 80%

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2014 Business Climate Survey

Living in Taiwan

The respondents praise Taiwan as a safe, friendly place to live for themselves and their families.

The Top Benefits of living in Taiwan* 2014

2013

2012

2011

Benefits

Taiwanese people are extremely nice

My family feels safe in Taiwan

Taiwan is an easy country to live in

Taiwan provides quality Health/Medical/Dental services

Alternative transportation options are usable and provide options to driving my car (i.e., buses, bike lanes, taxis, trains, sidewalks).

Taiwan provides adequate shopping opportunities

Taiwan delivers reliable electricity.

Mobile telephone coverage is excellent

The postal service is excellent

But some aspects could be improvedâ&#x20AC;Ś

The Least appreciated aspects of living in Taiwan* 2014

2013

2012

2011

Quality drinking water.

Banking and other financial services

Library services

Water runoff from storms is controlled and minimizes flooding

Quality youth activities

Sewer system in Taiwan works reliably

The standard of schooling

Safe, drivable street surfaces

New in 2012

Benefits 'English-friendly' environment

* Net difference of positive scores minus negative scores

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