Exploiting Asia’s Crisis: Taiwan Buys Up Bargains And Widens Its Influence

By Keith B. Richburg, The Washington Post, Thursday 22 January 1998; Page A23

TAIPEI, Taiwan—Southeast Asia’s currencies have collapsed and stock prices have plummeted. Businesses are filing for bankruptcy, banks are going belly up. And in the midst of the regionwide turmoil, Taiwan is on a shopping spree.

In a major policy move with long-term implications for the region, Taiwanese businesses are fanning out through the hardest-hit countries of Asia, hoping to take advantage of the crisis by buying up assets at fire-sale prices. Luxury hotels and cash-strapped financial firms are among the most tempting takeover targets, with one deal reported to involve a Taiwanese bid for the purchase of Bangkok Bank and another said to involve two five-star hotels in Thailand and South Korea

The motivation is not entirely economic. In its ongoing battle with Beijing for influence and political leverage, Taiwan is hoping to break out of its international isolation—fostered by Beijing, which considers Taiwan a renegade province of China. Taiwan hopes to do this by greatly expanding its commercial ties in Southeast Asia—an investment strategy known here as the Go South policy.

One of the leaders of the Go South strategy is the Taipei-based China Development Corporation, or CDC, the business arm of the ruling Kuomintang (Nationalist) party. President Lee Teng-hui, who is party leader, has pushed for Taiwanese businesses to look to Southeast Asia for new commercial opportunities, partly as a way to lessen the island’s economic dependence on mainland China, which lies just to the West. And the development corporation, as the largest investment group on Taiwan, is at the forefront of the southbound expansion.

The Go South strategy formally began in 1994, after Lee made a series of private golfing trips through the region, in what was then called golf diplomacy. But the CDC last year had kept the bulk of its investments on Taiwan.

This is the worst financial crisis ever in Asia, and it is a once-in-a-lifetime opportunity, CDC president Benny T. Hu told a Taipei daily, China News. If I don’t take advantage of it now, he was quoted as saying, people might ask later, `Why did you let this chance slip by?’

Hu, in faxed answers to questions about the development corporation’s investment policy, elaborated on the strategy, saying, Since Taiwanese businesses have expanded quite successfully in the region, we at CDC always believe it to be a good strategy to invest along with our industrial companies. . . . The significance now is that the buying opportunities arrive sooner rather than later.

Hu said no specific amount of money had been earmarked for the strategy, and so far no final investment decisions have been made. In any case, he said, projects targeted for investment will go through a rigorous due diligence process. He said, We have looked at quite a few cases in various industries. We have also sent teams into various countries to study the situation.

Taiwan’s business push into the region coincides with a series of high-level political visits to Asian countries by Taiwanese government officials eager to win new friends with generous offers of aid. With one of the world’s largest foreign exchange reserves—some $90 billion U.S.—and low external debt, Taiwan has been less affected than other countries by the ongoing regional a crisis and now stands in a position to assist in the bailout of the hardest hit.

In recent weeks, Taiwanese Vice President Lien Chan made a highly publicized four-day trip to Singapore, where he was greeted at the airport by Prime Minister Goh Chok Tong and dined with Singapore’s elder statesman Lee Kuan Yew. The Taiwanese prime minister, Vincent Siew, has been chatting with regional leaders during their stopovers in Taiwan, and Siew visited Manila last week and Jakarta this week for high-level talks about ways Taiwan can help during the current crisis. A 70-member Taiwanese trade mission just completed a swing through Thailand, Malaysia, Indonesia and the Philippines.

They consider the financial crisis in the Asian countries as providing an opportunity for Taiwan to play a role in providing assistance, said Andrew Yang of the Center for Advanced Policy Studies. On the business side, he said, They are shopping around and looking for the most promising countries facing crisis so they can gain a foothold.

With this investment, it will lead to a consolidation of mutual relations, Yang said. The Go South policy—shifting the westbound policy to a southbound policy—coincides with his [Lee Teng-hui’s] strategy.

Some Taiwanese analysts are skeptical about whether any concerted effort to use the Asian economic crisis to win long-term leverage can succeed. Some say a heavy influx of Taiwanese investment could create a popular backlash in the long term,.

Personally, I think this kind of approach is highly risky, said David C.L. Auw, secretary general of the Institute of International Relations here. Countries like Indonesia and Malaysia are very sensitive about foreign interests buying their banks or even getting joint ownership. It hurts their pride.

As for government assistance, Auw said any such aid should be given only through multilateral institutions; otherwise it will be politically sensitive for the host country.

Auw said Taiwanese have been investing in Southeast Asia for two decades, but mostly in smaller-scale manufacturing projects, rarely in the financial services sector. Buying banks or joint ventures is quite new for Taiwan, he said.

Indonesia, Thailand, Malaysia—they will welcome Taiwan’s goodwill, he added. But if it is done unilaterally, they will want to keep it low-profile to avoid antagonizing Beijing. . . . If the Taipei side tries to reap some political benefit, that is out of the question.

So far, Beijing has reacted cautiously to the new Taiwanese overtures to the region, reminding countries that have diplomatic relations with China that they should not hold official, high-level talks with representatives of the Taiwanese government.

Activities by the Taiwanese authorities are unpopular and doomed to failure, Shen Guofang, China’s Foreign Ministry spokesman, said at a news briefing in Beijing this week. We are resolutely opposed to any form of official contacts with Taiwan by countries having diplomatic relations with China.

On the commercial side, Chinese companies also seem to be doing regional bargain-hunting. For example, the Bank of China was said to be interested in purchasing parts of the defunct Hong Kong investment house Peregrine Investment Holdings Ltd.

WINDFALL FOR TAIWAN

While the economies of Taiwan’s neighbors, particularly Thailand, Indonesia and Malaysia, are in crisis with stock markets and currencies plummeting, Taipei is thriving and looking for new commercial opportunities.

PHILIPPINES

Prime Minister Vincent Siew visited Manila last week.

SINGAPORE

Vice President Lien Chan recently traveled to Singapore and met with Singapore Prime Minister Goh Chok Tong and elder statesman Lee Kuan Yew.

INDONESIA

Prime Minister Vincent Siew visited Jakarta this week.

TAIWAN

President Lee Teng-hui began the Go South policy in 1994, but most investment has been kept in Taiwan.

Stock markets and currencies have plummeted throughout Southeast Asia since last summer:

COUNTRY STOCKS CURRENCY

Taiwan -16.6% -14.1%

Indonesia -44.7 -69.3

Hong Kong -42.8 n/a

Thailand -35.4 -51.9

South Korea -33.3 -44.7

Malaysia -32.9 -37.0

Singapore -31.0 -13.0

Philippines -25.9 -28.4

Japan -16.7 -10.9

SOURCE: Bloomberg News