Interview with Dr. Chii-Ming Yiin, Taiwan's Minister of Economic Affairs
Michael McManus, DIGITIMES, Taipei [Tuesday 10 June 2008]
Digitimes recently had the opportunity to interview Taiwan's new Economics Minister Dr. Chii-Ming Yiin, to discuss current issues being handled by Taiwan's Ministry of Economic Affairs (MOEA), including regulations on investments in China, planned infrastructure projects in Taiwan and the effect of rising oil prices on Taiwan's economy.
Q: For Taiwan companies, the current cap on investment in China for Taiwan business groups is 40% of their net worth. While this policy is currently being reviewed by the government, there have also been regulations changes (Article 35 of the Act Governing Relations between Peoples of the Taiwan Area and Mainland Area) that can help release the 40% cap limitation without needing the Legislative Yuan to modify the law. Can you comment on this new regulation and how soon do you think the Taiwan Economics Ministry will propose a timetable and implementation for it?
A: In the age of globalization, Taiwan needs to consider cross-strait economic and trade relations as a part of the global market. We should respect the autonomy of companies in making overseas investments, including investments to mainland China, to the extent that these investments are beneficial to the companies' global operations and international competitiveness. We therefore need to rationally review and adjust the current restrictions on China-bound investment, including appropriately lifting the 40% ceiling.
We have already made initial plans for such adjustments. Involved agencies will soon be called together to discuss related matters and build a consensus. We will then amend the relevant regulations and submit them to the Executive Yuan for approval and implementation.
Q: In the high-tech industry, Taiwan has taken a very conservative approach over the past eight years toward allowing increased investment in China for leading-edge technologies, especially for the semiconductor (foundry and memory) and display (LCD panel) industries. Since these restrictions can limit growth for some of Taiwan's leading companies, how does the MOEA balance the need to promote Taiwan's industries with the need to also protect Taiwan's exposure to transferring important leading-edge technology to China?
A: Cross-strait cooperation can support Taiwan's high-tech industry in globalizing operations and expanding international market share. To facilitate such ties, we will review current restrictions on China-bound investment in high-tech areas in reference to international standards (such as the Wassenaar Arrangement) and based on Taiwan's industrial development needs. At the same time, we will encourage high-tech enterprises to continue innovative R&D in Taiwan to maintain our advantage in cross-strait industrial development.
Q: On the other hand, while Taiwan is looking to open up more trade with China, Taiwan already has a significant proportion of its trade coming from China. By encouraging more trade, how can the Taiwan government handle the issue of possibly being too dependent on China for economic growth?
A: Future negotiations between Taiwan and China will touch upon a wide range of issues, such as opening direct cross-strait charter flights, allowing mainland Chinese tourists to visit Taiwan, easing restrictions on imports from China, cooperating on IPR (intellectual property rights), and signing MRAs (mutual recognition agreements) on standards and inspections. So the negotiations will be quite comprehensive and not just focused on trade issues alone.
Taiwan and China share a common language and cultural heritage, and this gives Taiwan-based enterprises a deep understanding of the environment and commercial trends in China. We expect that, along with this understanding, the easing of restrictions on Chinese imports and investment in China will make Taiwan's enterprises ideal partners for international firms seeking to expand in overseas markets. It will also position Taiwan as a hub between the global market and the mainland market. Taiwan's role as a hub for international firms in Asian markets and as a key player in the global economy will minimize the political risks emerging from Taiwan's reliance on the Chinese economy.
At the same time, my government is devoting considerable effort into diversifying Taiwan's export markets. Specifically, we are encouraging local industries to channel more resources to promote their exports to 10 target markets, including India, Brazil, Spain, Vietnam, and Turkey. Already we are seeing very satisfactory results in penetrating these markets. We are confident that this market diversification policy will ease Taiwan's dependence on China for economic growth.
Q: Taiwan will undergo very large investments in infrastructure over the next few years. According to published reports, much of it will go toward encouraging tourism, but can you comment on how the investment will be targeted to encourage businesses, especially in the high-tech industry.
A: Actually, the impression that our infrastructure investment plans are directed principally at tourism is not entirely correct. Some projects involving communications networks and metropolitan restructuring certainly have indirect benefits for encouraging tourism. However, most of our infrastructure plans are in fact designed to stimulate economic activity, especially external trade, network innovation, and green production, all of which are needed for Taiwan's migration to a knowledge economy.
As to the relationship between our infrastructure plans and the development of high-tech industries, it is readily apparent that the infrastructure plans cannot be accomplished without support from the high-tech industries. Moreover, most of these plans are considered and chosen based on our industrial strengths and to provide a domestic market as a testbed for industrial technologies. For instance, under the "Smart Taiwan" project, we hope to develop Taiwan into the world's most wireless nation in terms of not only Internet access but also other high-end information technology applications, such as traffic control, logistics management, transaction systems and even remote medical care. This will require the full participation of hardware and software companies, both domestic and international. Other projects such as "Industrial Innovation Gateway" and "Remodeling of Industrial Parks" will also embed up-to-date information and environmental technology to support our future development.
Hence, in all these projects, high-tech industries will certainly be the driving force. Moreover, the performance of these projects will be determined not only by improvements in infrastructure, but also in terms of the GDP contribution from high-tech industries.
Q: Taiwan's ODMs have competed very successfully in the high-tech industry, but Taiwan firms tend to have low profit margins and their costs are always being driven down, placing even more pressure on margins. How will the MOEA help Taiwan companies move toward higher-profit market segments?
A: Taiwan's industrial strengths were initially in OEM manufacturing and later, through technological upgrades, ODM production. However, entry barriers and profits in manufacturing have fallen in the age of globalization and the knowledge economy. Like many advanced countries, Taiwan is therefore trying to transform its core business activities from manufacturing to branding and marketing so as to differentiate and add value to its products and services in the global market.
A central part of this strategy involves the promotion of R&D and "Branding Taiwan" to enhance the international competitiveness of our manufacturing sectors. The MOEA has formed a venture capital fund specifically for branding activities. It also provides preferential financial assistance, such as loans or R&D matching funds, for firms to develop new branded products.
In addition to branding, the MOEA is promoting industrial and innovation talent training programs, including programs implemented cooperatively between the academic and industrial sectors. Overall, the ministry seeks to implement these strategies concurrently to maximize synergy effects and effectively help local firms move toward higher-profit market segments.
Q: Taiwan recently launched an Intellectual Property (IP) Court to help further protect intellectual property rights in Taiwan. Do you think this will encourage more high-tech firms to invest in Taiwan? What other roles is the government taking to protect IP and increase investment from foreign high-tech firms in Taiwan?
A: Taiwan is thoroughly committed to IPR protection, not only as part of our obligation to the international community but also as a vital element in our industrial upgrade and national competitiveness. As such, building a sound environment for IPR protection has always been one of our key national policies.
Taiwan will inaugurate an IP Court on July 1, 2008. All of the legal and regulatory groundwork for the court has been completed, and eight outstanding judges with extensive background and experience in IPR issues have been selected to head the Court. The Intellectual Property Office will lend the expertise of nine technical examiners to assist the judges in hearing cases involving technical disputes. This arrangement will remove the obstacle we faced in the past of judges lacking professional IPR knowledge.
In recent years, Taiwan's IPR regulations have been extensively amended to bring them into line with international standards. As a result, we are receiving a growing number of patent applications from foreign companies. In 2007 alone, foreign companies accounted for 32,239 of the 81,834 patent applications filed. Each year Taiwan grants about 15,000 patent rights to foreign applicants. However, the increase in IPR filings has also resulted in an increase in IPR litigation. Figures from the Judicial Yuan indicate that the number of IPR cases heard at district courts in Taiwan increased from 3,500 in 2004 to 4,500 in 2006. With the establishment of the IP Court, future IPR litigation will be handled by a highly professional institution that fully regulates the qualifications of judges, litigation procedures, presentation of evidence, and trade secrets protection. IP disputes therefore can be effectively and efficiently resolved, and this will dramatically enhance IPR protection in Taiwan. In this environment, local enterprises will be more willing to invest resources in R&D, and foreign firms, especially in the high-tech industry, will have more faith in investing in Taiwan.
In addition to judicial reform, the Executive Yuan has approved an IPR Action Plan, under which different government agencies can meet periodically to coordinate and review the implementation of IPR protection measures. To further strengthen Taiwan's IPR protection environment, prosecutors, police authorities, and the Joint Optical Disk Enforcement Taskforce (JODE) coordinate their efforts to step up infringement inspections. In 2003, Taiwan formed the IPR Police, which is manned by 200 officers that deal specifically with inspections related to IPR infringement. Through these various initiatives, Taiwan has made tremendous progress in IPR protection. This progress is widely recognized and acknowledged by rights holder groups at home and abroad.
Q: To reflect rising global oil prices, the government recently eased restrictions on raising gas prices, and electricity prices will increase in July. Summer surcharges for electricity will also affect prices. How do you think this will affect the performance for Taiwan businesses for the rest of the year, especially for high-tech firms whose production facilities consume a lot of electricity? What will the MOEA do to support Taiwan's companies amid record oil prices?
A: The MOEA has been coping with high energy prices through both supply side and demand side measures.
On the supply side, the Directorate-General of Budget, Accounting and Statistics estimates that a 10% increase in electricity prices will translate into 9.9% higher power bills in the industrial sector. The sectors likely to see the biggest increases are the electric mechanical industry (10.7%), non-iron metal industry (10.6%), electronic manufacturing industry (10.5%), and transportation and storage industry (10.4%). Electricity accounts for about 2.57% of total production costs. In terms of total cost increases, the impact of a 10% increase in electricity prices will be greatest on the water supply industry (0.62%), medical services (0.62%), educational services (0.57%), and the restaurant and hotel service industry (0.55%).
High-tech companies use less oil than companies in traditional industries, so they are better insulated against the impact of fluctuating oil prices.
During the summer period, the electricity price structure in Taiwan includes various surcharges, including peak, semi-peak, and off-peak rates. Businesses and industries can adjust their production schedules to shift peak loads to off-peak and thereby reduce their electricity costs. We have also set up an energy-saving consulting group to help businesses reduce energy usage through efficient facilities and conservation strategies.
In addition, the Bureau of Energy under the MOEA recently announced a new strategy called "Demand Response." This is a kind of virtual power plant. An industry consumer with contracted demand of more than one megawatt can instruct Taiwan Power Company (Taipower) to allocate 20% of their power usage in the peak load period. Taipower will compensate companies for this at a rate of NT$9~13 per kilowatt-hour. The industry can use this strategy to maximize profits by adjusting production schedules.
On the demand side, our efforts have focused on energy conservation in the industrial and commercial sectors. One such measure is the promotion of energy efficiency management. Since 2007, we have expanded the scope of energy audits to 4,500 users currently. These users have reported savings of about 430,000 KLOE (kiloliters of oil equivalent) per year under this program.
Motor and boiler efficiency improvement is another focal area. Related efforts include the development of energy saving technical tools, enhancing the energy efficiency of existing power equipment and boilers, and establishing and strictly enforcing energy efficiency standards for power equipment and industrial burners.
In addition, teams were established in 2005 to provide energy-saving technology services to large industrial and commercial energy users. This service helped users to save 79,041 KLOE in 2007.
Another successful initiative has been the promotion of voluntary-energy conservation in the service industry, beginning with convenience stores, shopping malls, department stores, hotels, and hospitals.
Finally, the government provides financial incentives for energy conservation, including accelerated-depreciation, tax credits and low-interest loans for corporations investing in energy conservation equipment and technology.
Q: Many countries are currently looking to promote alternative fuel sources to combat the high oil prices worldwide? What steps is Taiwan taking to be less dependent on oil for its energy needs?
A: Taiwan is heavily dependent on imported fossil fuels. In fact over 98% of our fossil fuel energy needs are met by imports.
Consequently, there is broad support for promoting renewable energy in Taiwan. At the second National Energy Conference, consensus was reached to focus on formulating a long-term term energy policy that aggressively addresses the supply side through the development of renewable energy and tackles demand through energy efficiency and conservation.
On the energy supply side, we have set an ambitious target of increasing renewables to account for 10% of installed capacity, or 3,920MW (megawatts) by 2010. Currently renewables contribute 2,843MW, so we have a gap of 1,077MW to fill. Closing this gap is a priority concern of the MOEA at the moment. It also underscores the commitment of the government to a clean energy future for Taiwan.
Major renewable energy programs presently underway include the Solar Cities, Solar Roof, and Wind Park programs. The MOEA is also working hard to require public construction projects to meet certain renewable energy conditions.
Most of the current efforts undertaken by the government are aimed at improving the environment for investment in renewable energy and removing institutional barriers. Primary measures adopted so far have included implementing the Renewable Energy Promotion Program; pushing for the prompt passage of the draft Renewable Energy Development Act to guarantee market size; and developing green energy industries, such as photovoltaics, wind power, bio-diesel, solar thermal water heaters, LED lighting and energy service companies (ESCOs).
The government also aims to strengthen R&D capability and the development of high-efficiency and low-cost cleaner energy technologies, such as hydrogen infrastructure technology, fuel cell power generation systems, hybrid electrical vehicle systems, and high power and large scale lithium-ion batteries for hybrid power systems.
By actively implementing these action plans, we can reduce the impact of high oil prices, diversify energy sources, and spur development of green industries. This is a triple-win solution for environmental protection, energy security and economic growth.
Q: Taiwan's government has been very aggressive about investing and promoting WiMAX as an advanced wireless communications platform. What are the keys to making these investments a success story for Taiwan?
A: WiMAX technology enables the flexible network deployment and broadband connections that operators need to deliver a wider range of audio and video application services. It is also giving Taiwan's manufacturers an information advantage in the ICT (information and communication technology) industry. WiMAX also opens the door for new value-added products to improve current communication ecosystems, so it will also stimulate development in the telecommunications sector. For these reasons, we have chosen WiMAX as the next mainstream wireless communication technology in Taiwan.
Taiwan has already laid a solid foundation in the development of user-end WiMAX devices, and the industry is now moving on to base station deployment. Under the "M-Taiwan" (Mobile Taiwan) program, the government is aggressively promoting the development of WiMAX application services. This has encouraged many international companies to establish WiMAX R&D and testing centers in Taiwan.
The government has also signed a memorandum of understanding (MOU) with eight international players to cooperate on the development and production of WiMAX devices. These companies include such major names as Sprint Nextel, Nokia Siemens Networks, Alcatel-Lucent, Motorola and Starent Networks, NEC, Rohde & Schwarz, and Nortel. This year, moreover, we signed an MOU with Intel.
Under the MOU with Intel, we will encourage Taiwan manufacturers to invest US$500 million in new businesses that develop WiMAX application services and devices and provide system integration and consulting support, thereby helping Taiwan to build its WiMAX infrastructure.
Telecom operators are also rallying behind WiMAX. According to a report by the WiMAX Forum, more than 60 countries have deployed over 200 WiMAX infrastructure projects in the past three years. Many countries have also started to issue WiMAX operator licenses. In Taiwan, six such licenses have been granted, and local operators are now deploying WiMAX networks and operations.
Taiwan hosted the WiMAX Forum and WiMAX Operator Summit this year on June 2-3 in Taipei to provide a platform for WiMAX operators to exchange experience. This activity will help operators to understand how they can tap the broadband capabilities of WiMAX to develop new application services. This in turn will increase the market share of WiMAX in the global telecommunications industry.
The efforts of the Taiwan government and private sector in the development of WiMAX are already showing results. This is evident, for example, in the establishment of the M-Taiwan WiMAX Applications Lab (MTWAL) and WiMAX Forum applications lab. It is also apparent in the development of a growing spectrum of WiMAX chips, devices, and end products in Taiwan.
Dr. Chii-Ming Yiin, Taiwan's Minister of Economic Affairs
Photo: CJ Liu, June 2008