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Cross-strait trade relations have steadily improved since the signing of the Economic Cooperation Framework Agreement ("ECFA"). Taking the next step in Taiwan’s continuing efforts to promote cross-strait industry partnerships and to attract more mainland investors, the Ministry of Economic Affairs (MOEA) recently announced new industry categories that will be opened to Chinese investments. The announcement included twenty-five categories in the manufacturing industry, eight categories in the service industry, and nine in the public works industry.
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Chinese companies will be allowed to invest in these industry categories by forming joint ventures with Taiwanese companies, or by investing directly in existing Taiwanese companies. In the case of joint ventures, the share of Chinese ownership will be capped at fifty percent. The rules related to direct investments will vary according to the nature of the industry and the target company. Generally speaking, Taiwanese authorities will treat Chinese investments in regular industries like other foreign investments and will not attach any restrictions. On the other hand, the share of Chinese ownership will be capped at twenty percent for slightly sensitive industries, and ten percent for sensitive industries.
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The following are detailed information on the industry categories:
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Manufacturing industry
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Investments in battery manufacturing, metal manufacturing (e.g., door knockers), power equipment manufacturing, and chemical manufacturing (e.g., dye and paint) will not be restricted.
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For investments in chemical engineering and machinery and equipment manufacturing, Chinese ownership may not exceed twenty percent in an existing company, or fifty percent in a joint venture. In addition, the Chinese company may not have control of the target company.
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Chinese investments in IC manufacturing, including wafer foundry services, semiconductor packaging and testing, and the manufacturing of circuit boards and metal-cutting machines, may not exceed ten percent in an existing company and fifty percent in a joint venture. Again, the Chinese company may not have control. In addition, the Chinese company must provide a strategic partnership plan for review and approval.
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Service industry
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Investments in tourist cable car services, parking lots, amusement parks and theme parks (except forest parks) will not be restricted.
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Chinese ownership of target companies in the port industry, such as wharf management, and the storage industry may not exceed fifty percent of an existing company. The Chinese company also may not have control.
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Public works industry
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Chinese companies will be allowed to invest in civil airports and maintenance hangars, parking lots at public transport facilities, pollution control facilities, sewage facilities, and international conference centers. Chinese companies may not own more than fifty percent of maintenance hangars, and they may not be the largest shareholder in such investments. Aside from this, investments in these categories will not be restricted.
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The MOEA has promulgated various regulatory mechanisms for these investment categories. Investments that implicate sensitive technologies, such as IC manufacturing, semiconductor packaging and testing, as well as the manufacturing of LCD panels, LCD panel components, metal-cutting machines, and machines used in electronic and semiconductor manufacturing, will be subject to ownership limits. Chinese companies must be upstream or downstream manufacturers or can help expand the marketing channels. They must also provide strategic partnership plans for review and approval, not assume the position of or appoint key managers, not control more board seats than all other shareholders, and not solicit proxies prior to shareholder meetings.
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The MOEA will impose similar regulations on investments in port and storage industries – ownership capped at fifty percent, no assumption or appointment of key managers by Chinese investors, no more board seats than all other investors, and no solicitation of proxies before shareholder meetings, etc.
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In the future, the MOEA will continue to evaluate its policies regarding mainland investments in Taiwan to suit the practical needs of the market.
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