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202 Taiwan Development Perspectives 2009 nel the required funding, management know-how, and techniques to high-tech industries and provide necessary assistance in the IPO process for the sector as well. Generally speaking, the venture capital business strategy and functions are as follows: (1) Making investments in emerging technology companies that are rapidly growing; (2) Providing assistance for emerging technology companies in products or manufacturing technology innovations; (3) Taking high risks in pursuit of great returns; (4) Investments in emerging technology companies are primarily in the form of stocks; (5) Offering high value-added assistance through participation in the operations and decision-making process of the invested firms; and (6) Making strategic plans for long term investments. Venture capital is distinct from the usual types of investment institutions, because it not only serves as a fund provider, but also gives support in business connections and techniques development for the invested firms. They focus on the start-ups in the high-tech sector, although they are not allowed to invest in either non-manufacturing industries or stocks traded on the open market. For high-tech industries, venture capital has created a well-established business environment for the management teams and laid a solid foundation for sustainable growth of this sector. One of the primary functions of venture capital is to provide funding support for the start-ups in the emerging technology sectors. Since they exist for the same purposes as OTC, which aims to facilitate liquidity in capital markets and thus create an efficient financing channel for SMEs as well as emerging technology firms, venture capitalists shall be allowed to be listed as TIGER (Taiwan Innovative Growing Entrepreneurs) stocks in OTC. While the number of institutional or individual venture capital shareholders has significantly declined since their favorable tax deduction were called off in 1999, obtaining convenient access to public financing is particularly critical to the revitalization of venture capital businesses now. Unfortunately, however, it seems that the proposal is unable to receive positive supports from the securities authorities are reluctant to render support and the venture capital businesses are still plagued by funding difficulties. Besides, the venture capital businesses, which generally yield 5 to 10 times as much return as investments in traditional industries, shall be very popular to the investors in the open markets. Therefore, allowing venture capital businesses to be listed on the TIGER board will not only enable them to have access to public funding, but will also improve the liquidity of the OTC market. Even though there is plenty of idle capital in the private sector, the prolonged downturn in the stock markets and the rapid depreciation in the NTD have made the public much more conservative about investment, resulting in the general underestimation of corporate value as well as the prevalence of private placement for the M&A of high-tech firms since 2006. 2. SME Credit Guarantee Fund SMEs have made significant contributions to the economic growth of Taiwan. However, due to the information asymmetry emerging from the financial system deficiency in SMEs, their financing is usually regarded as risky. When they seek bank loans, SMEs are either charged unreasonably high interest rates or unable to get sufficient funding to sustain their operation. To facilitate the growth of SMEs, the government started to attach importance to counseling services in the early 1960’s. In February 1964, a task force specialized in the counseling services for SMEs was established by the International Economic Cooperation and Development Committee. In September 1967, the Small and Medium-Sized Enterprise Guidance Regulations, which clearly defined the appropriate targets of the counseling services, was approved and put into
Strategies for Cross-Strait Financial Exchange and Cooperation under Financial Tsunami 203 force. In January 1968, the task force upgraded to the Small and Medium Enterprise Administration, which proposed a Small and Medium Enterprise Credit Guarantee Fund. The 1970’s were a decade of turbulence in the global economy and financial markets. In October 1973, the global energy crisis arose as a result of a war in the Middle East. The Ministry of Finance proposed a bill for the establishment of a credit guarantee fund for small and medium-sized enterprises in February 1974 at the request of the Central Bank and the Ministry of Economic Affairs. On July 9, the SME Credit Guarantee Fund (SMECGF) started operation. The SMECGF provides credit guarantees for SMEs that have tremendous growth potential but have difficulties submitting required collaterals to secure sufficient funding. It also helps financial institutions reduce the risks of extending loans to SMEs and increase their confidence in the credit quality of the borrowers. Moreover, the Ministry of Finance was made in charge of the development of SMEs in April 8, 2003. The government and financial institutions contributed to the SMECGF. The total amount contributed by financial institutions may reach up to 35 percent of the SMECGF. As of March 2005, the government contributions amounted to NT$42.925 billion (equivalent to 84.35 percent of the total fund) and those from the financial institutions to NT$7.964 billion (15.65 percent). The amount of contributions was determined annually on the basis of actual demands. Furthermore, in principle, compensation reserves shall be raised from the revenue of guarantee services and investment returns to secure the funding kept at the initial level. The annual fees for all types of guarantee services except those for direct guarantee which varied from 1.25 to 1.5 percent depending on the level of credit quality were fixed at 0.75 percent in 2004. Since 2005, the original approach was replaced by a risk-based pricing system, which grouped the guaranteed at three levels by the degree of their credit risk exposures and the rates applied were 0.75, 1.0 and 1.5 percent. As of February 2006, the fund offered credit guarantees to 246,726 SMEs, with the loans guaranteed numbering 2,908,812, the total guaranteed amount reaching NT$3.3837 trillion, and the total value of the guaranteed loans amounting to NT$4.960 trillion. The parties guaranteed by the fund are the qualified SMEs (which complied with the prescribed requirements specified) in manufacturing and other sectors. The types of financing under guarantee included general loans, commercial paper guarantees, export loans, inventory loans, policy loans, performance guarantees, development loans, small-scale loans, loans for promoting industrial research and development, preferential loans for facilitating R&D, guarantees by installments, and financing for knowledge-based enterprises. Additionally, the government also provided credit guarantees for certain types of projects for non- SMEs and individuals. V. Conclusions In the era of globalization, international economic interdependence is getting ever more intense, giving rise to a greater risk of cross-border contagion of economic and financial shocks. China has been growing at an astonishing speed, since it decided to step on the road to economic reform through policy liberalization. Over the past few years, foreign investors converging on China in pursuit of a plentiful source of labor and favorable access to the market with tremendous growth potential have made that country the largest and most important production base in the world. In the mean time, the industrial structure and production environment in Taiwan and Hong Kong have been transformed for rapid progress. It would be worthwhile to discuss the trends of economic integration amongst China, Hong Kong, and China in the future and their joint efforts to share economic prosperity. In the past, owning to the remarkable difference in dimensions of market hinterlands, resources, labor force, technology, and levels of development, China, Hong Kong, and Taiwan were able to enjoy substantial benefits through complementary cooperation among themselves. However, as a result of the improvements
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CONTENTS Preface Overview ix xi Foc
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Agriculture and Fisheries Impact of
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CHUANG, Yih-chyi( 莊奕琦 ) Pro
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TAN, Ching-yu( 譚瑾瑜 ) Associ
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enth effort on the part of the Foun
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ills pertinent to parliamentary ref
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