Investor Confidence in the Approval Process

With exports continuing to fall month after month from the previous year’s levels, and with negative growth in the past two quarters officially confirming that the Taiwan economy has fallen into recession, the new government taking office May 20 will need to place economic revitalization at the top of its policy agenda.

One of the chief areas the new administration will wish to examine is Taiwan’s slump in attracting foreign direct investment (FDI). In recent years Taiwan has ranked near the bottom of countries in the Asia Pacific region in that category, and last year was no improvement, as Taiwan managed to attract just US$4.796 billion in FDI, the lowest of any year since 2008. FDI is vital for the economy, not merely for the capital infusion, but for the new technology, employment opportunities, and access to markets that it brings.

A key reason for Taiwan’s poor FDI performance has been the frequent unpredictability of the investment application process. Would-be investors were deterred by the inability to forecast, with any degree of confidence, whether they would receive approval from the relevant government regulatory bodies. The approval process sometimes dragged on so long that the applicant eventually withdrew. Decisions, when they came, often seemed based not just on formally announced standards but also on additional – often vague and subjective – conditions.

In response, AmCham Taipei arranged a series of meetings with the regulatory agencies over the past several years, and our members were encouraged that progress was being made toward setting more clearly defined criteria. However, a current investment application case – involving the proposed sale of a majority stake in cable-TV operator China Network Systems (CNS) to a private equity subsidiary of Morgan Stanley – is casting doubt on whether the process has indeed become more predictable and transparent.

The case is also raising the risk of politicizing an approval process that should be handled in an objective and professional manner by officials insulated from outside influences. After holding public hearings and conducting in-depth inquiries, the two main regulatory bodies dealing with this case – the Fair Trade Commission and the National Communications Commission – have both given their approval. But the final green light from the Investment Commission has been held up due to the objections of certain legislators demanding further review of the application.

At issue is the role of telecom operator Far EasTone (FET), which is slated to help finance the purchase through purchases of non-convertible bonds. Under Taiwan law, government investment in media companies is prohibited, and about 2% of FET shares are held by government investment funds. But a bondholder is not an equity investor, any more than is a bank providing loan financing. The two regulatory commissions verified that FET would have no representation on the CNS board or involvement in its management.

Aside from the constitutional question of whether legislative interference in the approval process infringes on the separation of powers, any undue delay by the Investment Commission in reaching a conclusion will surely be noted by potential future investors expecting an expeditious hearing. Treated properly, the CNS case is an opportunity to show foreign investors that Taiwan has remedied previous problems with the approval process and is ready to be once again treated as a prime market for investment. Mishandled, the current situation will simply confirm the detractors in their pessimism and put Taiwan at risk of being frozen out of investment opportunities for some time to come.

Leave a Reply

Your email address will not be published. Required fields are marked *