Time was-and not so long ago-when few foreign capitalists gave a thought to investment in Taiwan. The island had no industries to speak of in the late 1940s, and its economy was a shambles as an aftermath of Japanese exploitation and World War II. Invasion by the Chinese Communists seemed imminent. Some of its staunchest friends thought the Republic of China didn't have a chance.
Less than 20 years later the Republic's province of Taiwan ranks as one of the fastest developing lands in Asia. Investors from Japan and the United States are expressing their confidence in the economy with plants worth scores of millions of dollars.
Despite population growth of 3 per cent annually, the Gross National Product increased from US$394 million in 1952 to US$2,820 million in 1965. Per capita income soared from US$70 to US$195. Between 1953 and 1965, exports rose from US$119 million to US$487 million annually, a gain of 308 per cent. The average rate of economic growth is 8 per cent a year. Foreign reactions to these successes have included such adjectives as "phenomenal" and "miraculous".
In December, free China's island province undertook an ambitious new project that should lead to economic take-off and enable Taiwan to challenge the Asian economic dominance of Japan and Hongkong. Opened at Kaohsiung on the Taiwan west coast, 200 miles south of Taipei, was a 170-acre export processing zone that already has attracted 52 investors. Only 14 of these investments are wholly domestic.
Nineteen investors are overseas Chinese: 1 from the Philippines, 2 from Japan, and 16 from Hongkong. Foreign investors number 16; 8 from Japan, 5 from the United States, 1 from Israel, and 1 from Holland. The remaining 4 are Sino-Japanese joint investments.
Capital invested to date is US$10.7 million, broken down as follows: domestic, US$2.1 million; overseas Chinese, US$3.1 million; foreign, US$5.1 million; and Sino-Japanese, US$0.4 million.
Jobs for 30,000
By next June, investment is expected to total US$18 million in 120 plants employing more than 30,000 persons.
Known as the Kaohsiung Export Processing Zone, or KEPZ for short, this new industrial complex is situated on a man-made peninsula which until three years ago was a stretch of desolate sand dunes within the harbor of Kaohsiung. By December, the zone was lined with roads and railways, dotted with modern factory buildings, and ringed by godowns and wharfs with convenient docking facilities. Since then, KEPZ has been a beehive of activity. Factories are being established by the first 52 investors, and 12 have begun production. The 52 plants will have 15,529 employees.
Products of KEPZ industries cover a wide range, paced by garments and electronics. Also included are jewelry, furniture, wigs, toys, kitchen wares, plastics, shoes, and gloves. These exports will compete with Hongkong and Japan for world markets.
A brainchild of free Chinese economic planners, KEPZ differs from industrial districts and free trade zones. It incorporates the functions of both and also has some special features of its own. The principal objectives are to:
-Promote development of export industries.
-Attract overseas as well as domestic investments.
-Create new job opportunities for the island's growing population.
-Develop new production techniques as a result of the influx of overseas investments.
At KEPZ, investors deal with a single government agency that has authority to approve investment applications and then to deal with problems of land, labor, taxes, construction, water and power, foreign exchange, customs inspection and clearance, and import and export licensing. The Kaohsiung Export Processing Zone Administration (KEPZA), which represents the government, eliminates the red tape that has militated against more rapid Taiwan industrialization.
Incentives offered by KEPZ to investors are numerous. They include:
-Tax exemptions. All enterprises are exempt from import duty on machinery, equipment, raw materials, and semi-finished products imported for their own use. Local purchases are classified as imports and are therefore eligible for tax rebates or exemptions. Commodity taxes are waived. A five-year corporate income tax holiday is granted for most investments.
Plentiful Labor
-Repatriation of profit and capital. Profit may be repatriated without limit. After the second year, capital may be repatriated at a rate of 15 per cent annually.
-Labor and wages. Kaohsiung, the second largest city and largest port of Taiwan, has a population of more than 600,000 in the city and another 700,000 in the county. More than 90 per cent are literate. Average monthly wages are US$15 for an unskilled woman, US$20 for an unskilled man, US$30 to US$37.50 for a skilled woman, and US$37.50 to US$50 for a skilled man.
-Power and water. Low tension industrial power costs from NT$0.29 to NT$0.37 per kilowatt hour and high tension power from NT$0.23 to NT$0.34. Water is NT$0.725 per metric ton. The exchange rate for New Taiwan and U.S. dollars is 40 to 1. The government estimates Hongkong power rates at 250 per cent higher and water at 240 per cent more.
Buildings Available
-Land and public utilities. Land may be leased for US$0.02835 per square foot per month. Roads, power, water, postal and telegraphic services, transportation, and warehousing are provided.
-For investors who do not require specially designed factory space, KEPZA has constructed standard industrial buildings that can be purchased on terms of 30 per cent down and the remainder in equal quarterly installments for a period of 10 years. The interest rate is 10 per cent per annum. Twenty-one three-story reinforced concrete structures will be built.
-Simplified procedures. Applications usually are approved or rejected within a month. Within the zone, export and import licenses are issued within 24 hours.
-Transportation and warehousing. A two-story warehouse has floor space of 6,000 square meters accommodating 12,000 metric tons of cargo. Equipment includes a 10-ton mobile crane, 4 forklifts, 4 towing tractors with capacity of 20 tons each, 40 trailers, 3 bonded trucks, and 1,000 pallets. The cargo capacity is 30,000 metric tons a month.
-Foreign exchange and trade control. For imports, the deposit requirement is only 20 per cent of the foreign exchange applied for.
Admissible industries total 17 plus a catch-all for labor-intensive products. They are: precision machinery and instruments, electronics, optical products, metal products, plastics, machinery, furniture, handicrafts, electrical appliances, rubber products, printing, chemicals, confectionery, cosmetics, leather goods, knitted and woven goods (non-cotton), and garments.
Special Statute
The idea for a Taiwan export processing zone first was broached 10 years ago in line with plans to attract foreign investment and thereby accelerate the island's industrialization and economic development. Economic planners of the government were exploring the feasibility of cordoning off a special district at Kaohsiung harbor for export industries. Subsequently, foreign specialists invited by the government to work on a harbor expansion project suggested an international trade zone. Civic and business leaders urged a free port at Kaohsiung to attract foreign investment and promote trade.
The years that followed saw extensive studies and careful planning. In January of 1965, the Legislative Yuan, China's top lawmaking body, passed a special statute that provides the legal basis and guiding principles for KEPZ. On March 20, 1965, KEPZA set up a preparatory office to plan and supervise construction.
Financing for KEPZ came from grants and loans extended by the Sino-American Economic and Social Development Fund. As of the end of October, 1966, a total of US$355,000 in grants had been received. Loans for construction of warehouses and purchase of equipment and facilities total US$443,000. Another US$209,000 in loans was made available to finance construction of public installations and utilities.
Speaking at the KEPZ opening, Vice President and Premier C. K. Yen said the zone is of great significance. Most important of all, he said, is its demonstration of the pioneering spirit with which the Republic of China has successfully carried out three four-year economic development plans and begun a fourth.
The Vice President noted that Taiwan has rebuilt war-damaged plants and equipment, continuously created and expanded industries, and changed the base of its economic structure from one of agriculture to one of industry.
Investors Attracted
Pointing out that Taiwan's population density of 351 persons per square kilometer is the world's second highest, and that natural resources are limited, Vice President Yen said the island must export to live. He cited the 308 per cent export gain between 1953 and 1965, and called attention to the fact that in the same period the export increase for industrial products was 457 per cent—from US$4.3 million to US$201 million. Export processing zones can be principal means of boosting exports, he said.
Economic Minister K.T. Li speaks at KEPZ opening. (File photo)
Regarding employment, he noted that in 1953 about 61 per cent of Taiwan's jobs were in agriculture and only 9.3 per cent in industry. The 1965 figures were 53.7 per cent and 12 per cent, respectively.
"I am particularly happy to learn that investors from Hongkong have expressed the opinion that the capacity of our workers for learning and doing a job is greater than in other parts of Asia," the Vice President said. "This is not accidental; I believe our social and educational environment have much to do with it."
Economic Minister K. T. Li, also speaking at the opening, called attention to Kaohsiung harbor improvements. He said development of the port must keep pace with output of the export zone and with Taiwan industry in general. Cargo handled at Kaohsiung increased from 1.9 to 6.8 million metric tons between 1954 and 1965, a gain of 652 per cent. By 1970, the water area of Kaohsiung harbor will have been increased by six times.
The economic minister also cited the ample supply of labor in Kaohsiung and southern Taiwan. He said the Kaohsiung Industrial College and Kaohsiung Vocational Training School are in a position to train the skilled workers required by new industries.
Plans are under way to develop a 370-hectare tract only live kilometers from the export processing zone as a community for KEPZ workers. Housing and other facilities will be constructed by KEPZA and other government agencies. Within the zone itself, 20 dining halls and a public health center and clinic will be built. Bus transportation is available to Kaohsiung city. The distance is such that workers can commute by bicycle or scooter.
US$300 Million
Government officials are pleased with the interest shown by overseas Chinese capitalists, and especially of those from Hongkong. They are confident KEPZ will continue to attract capital that otherwise would be invested in Hongkong, Japan or elsewhere in Asia.
The amount of Taiwan overseas investment has increased sharply since passage of the Statute for the Encouragement of Investment in 1960 and the establishment in the same year of the Industrial Development and Investment Center under the Council for International Economic Cooperation and Development (CIECD). During the last two years alone, Taiwan has attracted US$300 million in foreign investment, according to S. Y. Dao, CIECD secretary-general. He is confident the island will do even better in the years to come.
Reporting on the investment picture in free China, the New York Times of February 7, 1966, said that in the last six years, the "gentle drizzle of overseas investment dollars has turned into a warm shower. The government now feels the climate is ready for rain and is offering new incentives."
In addition to granting tax exemptions and numerous other incentives, the Chinese government has repealed a law that limited the foreign share of company ownership to 49 per cent. The business tax has been reduced from 32.5 to 18 per cent. Taiwan also has these attractions for foreign investors:
-Economic and political stability.
-Plentiful electric power and water at low rates.
-Good transportation facilities and air-sea connections with all parts of the world.
-Growing numbers of domestic consumers to supplement foreign markets.
A recent Chinese government survey showed that Americans, Japanese and overseas Chinese investors have contributed the bulk of Taiwan's external investment capital. American capital is mostly in the chemical, petrochemical, and electronics fields. Japanese investors favor pharmaceuticals and electrical appliances. The overseas Chinese have put their money into a wide spectrum of enterprises—textiles and garment-making, food processing, tourist hotels and housing, handicrafts, chemicals, animal husbandry and animal feed, and banking and insurance.
Ninety-two per cent of foreign-owned industries in Taiwan are doing well. The companies surveyed are producing chemicals, textiles, food, fertilizers, mineral products, pharmaceuticals, machinery, communication supplies, electrical appliances, musical instruments, and glass.
Major American enterprises in Taiwan are Allied Chemical, American Cyanamid, Atlas Chemical, General Instrument, Gulf Oil, National Distillers, Pfizer, Philco, Proctor and Gamble, Socony Mobil, and World Homes.
KEPZ is only the beginning. The government of the Republic of China has plans for several other export processing zones in addition to the industrial estates already opened or under construction.
"Taiwan indeed has come a long way," said one American industrialist who owns a pharmaceutical plant in Taipei. "By investing in free China, we have done pretty well for ourselves. It pays to put your money where there are industrious and intelligent people."