beyondbrics

Taiwan has long had strong cultural ties and affinity with Japan, given the 50 years of Japanese colonial rule over the island to 1945. Economically, however, it has been a bit of a love-hate relationship, with cheap Taiwanese manufactured goods often competing with and taking market share away from their Japanese counterparts.

That could change, after Taiwan and Japan on Thursday signed a trade and investment agreement that includes investment protection and promotion. The agreement comes amid renewed Japanese interest in investing in Taiwan.

Shih Yen-shiang, Taiwan’s minister of economic affairs (pictured), said there had been a “marked increase in the number of Japanese companies expressing interest in investing in Taiwan. The reason for this is related to the March earthquake and tsunami. Japan feels that they need a reserve base of production, and they think Taiwan is a good location for that”.

Taiwan government data show that approved inbound investment from Japan rose from $27m in June to $100m in August, although this year Japanese investment still only accounts for just 10 per cent of foreign investment into Taiwan.

Some examples include Furakawa Electric, which has invested T$1.65bn since April to set up a new plant in Taiwan. Furakawa makes a variety of materials and electronic parts. Elpida, the Japanese memory chip maker, has also said it has plans to move production from its Hiroshima plant to Rexchip, its subsidiary in Taiwan.

Japanese investment is not just limited to industrial production. Taiwan’s domestic market, which has been growing steadily in part thanks to an influx of Chinese tourists, is also attracting attention. Tadashi Yanai, chairman and chief executive of Fast Retailing, was in town on Thursday as part of the Japanese delegation for the signing. Yanai said he planned to open five stores in Taipei this year and 30 more across the island next year.

Other Japanese retailers are also stepping up. Isetan Mitsukoshi Holdings is investing T$900m on its already popular Shinkong Mitsukoshi malls in Taiwan.

Given that there are already very few barriers to investment between Taiwan and Japan (unlike, say, the barriers Taiwan has erected against Chinese investment), Thursday’s agreement will likely be of more symbolic than practical importance.

Symbolically, however, it is a powerful boost for president Ma Ying-jeou ahead of January’s presidential election. His administration sold a landmark trade deal with China last year in part on the argument that it would allow Taiwan to sign similar trade pacts with other countries – something that has long been difficult for the island because of political pressure from China. Thursday’s agreement was the first one to be signed after the China deal.

As Ma said on Thursday: “This is an important first step for us to change Taiwan’s position within Asia Pacific’s economic map . . . it shows that Taiwan’s investment is not just concentrated within mainland China”.

Related reading:
Taiwan: raise your (Scotch) glasses, beyondbrics
China trade deal brings Taiwan exports boom, FT