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| Crossing the Strait | | Print | |
| May / June 2008 | |||
 The mainland may be Australia's number one trade partner, but some of the single biggest business deals are still taking place across the Taiwan Strait reports Rowan Callick.  What's the biggest contract signed by an Australian company? What's the biggest investment by an Australian company in the Chinese world? Both are with Taiwan. And more like them can be expected in the future, as the presidential election there on March 22 saw a landslide victory for the Kuomintang's Ma Ying-jeou, a likeable, good looking former mayor of Taipei with a Harvard law degree.He is seeking closer links across the Taiwan Strait with China, through a European style common market, and through direct flights and shipping rather than as at present, via third parties - principally Hong Kong and Macau. He is also likely to launch a steady program of privatizations, such as of airports and of toll-roads, that will stimulate considerable interest from regional investors - led by Australia's Macquarie Bank. Since the KMT earlier won in January, 81 of the 113 seats in the legislature, that gives Ma massive power to press rapid economic reform. The biggest ever Australian contract was initialed last November between Australia's Woodside and Taiwan's state-owned oil and gas giant CPC. It was then formalized at a ceremony in Sydney on March 1 involving Taiwan's Economic Affairs Minister Steve Chen and Australia's Trade Minister Simon Crean. The contract, to supply two to three million tonnes of liquefied natural gas per year for 15 to 20 years, will be fulfilled through the development of the Browse field off Western Australia. It is worth up to A$40 billion, and will meet 25 percent of Taiwan's LNG needs. The terminal receiving the gas is owned by CPC, which then on-sells it to Taipower to produce electricity. More such contracts are expected. Taiwan - with a population of 23 million, a little more than Australia's - is the third biggest market for LNG in Asia after Japan and South Korea. The largest Australian investment in the Chinese world is the A$1.4 billion paid almost two years ago by Macquarie Media for 60 percent of Taiwan's third ranked cable TV company. Taiwan is the second most cabled place in the world, where it costs at present about $20 a month to obtain 105 channels. At present, they are analogue - but migration to digital is on the way. Macquarie has been happy with the way its investment has performed to date, and expects to enhance its return once it has gone digital. And Macquarie also owns a A$70 million windfarm in central Taiwan, at Xinzu. Overall, the firm employs about 100 people in Taiwan, most of them involved in the broking and research areas originally operated by ING Barings, whose Asian operations Macquarie bought out. It also runs a corporate advisory service. Other major Australian businesses with high visibility in Taiwan include ANZ Bank, Optiver, and Salmat. Optiver is by earnings the second largest proprietary futures trader in Taiwan. In 1998, Sydney based logistics corporation Salmat - which was listed on the Australian Stock Exchange in 2002, and employs overall 5,000 people - decided to establish its first Asian plant in Taiwan. It repaid the investment in its first year. Ben Way, the Macquarie head in Taiwan, is also the chairman of the Australian and New Zealand Chamber of Commerce in Taipei, which has about 200 members, and is growing. Many of the 200 are, like their mainland Chinese counterparts, people running small businesses, some of whom have come to Taiwan to learn Chinese and have stayed on. Way says that the chamber hosts annual business awards, provides a social environment, does charity work with orphanages, and organizes functions when interesting Australian visitors pass through - recently, for instance, the founders of the Lonely Planet guides. He says that Taiwan has a lot of pluses for business. "It has the rule of law, it is a huge trader, it has a relatively open market economy, it has a proven track record with a range of asset classes, it is under-appreciated." Bizarrely, Australian businesspeople sometimes hold back from even considering investing in or trading with Taiwan out of concern that this might somehow affect their relations with the People's Republic of China. Yet Taiwan is itself by far the biggest investor in mainland China, with more than A$100 billion assets there, with about a million Taiwanese living there to manage those assets. About 35 percent of Taiwan's exports go to China, compared with just 14 percent of Australia's. Ross Maddock, the Sydney-based executive director of the Australia Taiwan Business Council - whose chairman is the former National Party leader Ian Sinclair - says that Taiwan's 5.4 percent economic growth in 2007 was "high for a country with a per capita gross domestic product of around US$17,000." He says: "The recent Woodside-CPC deal is a reminder that Taiwan remains a major, growing customer for Australia. Exports increased by over 20 percent in 2005-2006, and 16 percent in 2006-2007." Commodities dominate, as they do most of Australia's exports to north Asia - with coal, copper, iron ore, uranium and aluminium prominent. The business council expects that the pace of economic reform in Taiwan will pick up following the election. Maddock says: "There will be more opportunities for Australian participation, particularly in the finance sector and in infrastructure." Taiwan makes 90 percent of the world's notebook computers, 80 percent of all motherboards, and 60 percent of cable modems. Since 2006, the ATBC has been working with the Australian Electrical and Electronic Manufacturers' Association (AEEMA) to stimulate more business in the high tech sector, the engine of Taiwan's economy. The ATBC's 23rd joint conference, with its Taiwanese counterpart, will be held in October in Taipei, in conjunction with a major bilateral high-tech event. Steve Waters, Australia's energetic representative in Taiwan, says that even before the $40 billion LNG starts to flow, it is the seventh biggest buyer of Australian exports. He says that the business environment is positive: "It may take a while for the Taiwanese to negotiate a contract, but once they sign it, they stick to it." He says that scientific cooperation is expanding especially rapidly: "Australia has been good at research, and Taiwan at commercialization. We need to marry the two." Following a tour of Australia by the presidents of eight of the 12 top Taiwan universities, with a special focus on building bio-technology and nano-technology links, there has been a rapid growth in postgraduate connections. Privatised China Steel Corp, one of the world's biggest steel makers, buys 63 percent of its iron ore from Australia. And Taipower is now assessing investment opportunities in Australia to secure supply of new materials it needs. The big growth in tourism to Australia from Taiwan is in young people taking working holidays under a special arrangement - short-term tourism has suffered from the rising Australian dollar and the rapid increase in oil prices and therefore air fares. "But getting attention for Taiwan is very difficult," Waters - a fluent Chinese speaker - concedes, with China grabbing the spotlight. The change in government in Taipei, though, is likely to aid the inevitable process through which as Australian businesspeople become more familiar with the Chinese world as a whole, they will inevitably consider how to seize the opportunities opening up in what many Chinese people view as "treasure island."
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