The signing of an investment protection pact between Taiwan and China may not benefit Taiwan’s economy if the current investment flow is unbalanced, officials at Bank of America Merrill Lynch said.
In a research note published on Friday, Merrill Lynch said bilateral investment flow remains unbalanced and one-sided because investment from China to Taiwan continues to be treated more prohibitively than outbound investment to China.
Last year, Chinese investment to Taiwan totalled $43.7 million, compared with the $13.1 billion of Taiwanese investment to China, according to Merrill Lynch’s data.
For the first six months of this year, Chinese investment in Taiwan increased to $122.2 million, but that was still less than the $5.2 billion of Taiwanese investment in China, the US bank said.
If the investment pact encourages Taiwanese to keep investing in China, but not in Taiwan, the deal may not benefit Taiwan’s economy, said Marcella Chow, a Hong Kong-based economist at Merrill Lynch – the banking group which benefitted from a massive US government bailout package at the height of the banking crisis in September 2008.
“It may defeat the government’s potential stimulus plans to encourage Taiwanese businesspeople based overseas to invest in Taiwan,” Chow wrote in the note.
“As a result, further deregulation of foreign direct investment is required to substantially promote and attract investment from China in order to narrow the current imbalances,” Chow said.
However, Chow added that a closer cross-strait relationship will probably revive consumer sentiment and consumption, albeit slightly, as overall sentiment would be overshadowed by the disappointing macroeconomic data.
During the eighth round of cross-strait talks in Taipei on Thursday, the heads of the Straits Exchange Foundation and its Chinese counterpart, the Association for Relations Across the Taiwan Straits, signed an investment protection pact and a customs cooperation agreement.
With the latest two agreements signed, Taiwan and China have inked 18 agreements since the two sides resumed dialogue in 2008.