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A Digression on Taiwanese Managers

April 18, 2004

Reader Calmo and I were discussing the role of Taiwanese enterpreneurs in modern China.

I had mentioned that

Taiwanese businessmen tend to regard themselves as having proven themselves as an able managerial class, ideally suited to guiding China into the 21st century; I can't say I blame them, but mainland Chinese find their manner at times really offensive. It's sort of the "We're the natural aristocracy, you know" attitude that leaves others really annoyed.

Calmo was surprised:

Is it just so naive to imagine that China has an entrepeneurial elite every bit as capable as the Taiwanese managers? They have had a decade to learn this management, no?

No, it's not naive at all; however, consider this: it is not uncommon for British firms (including the Corporation of London) to hire American managers despite the fact that Britons have been managing firms for centuries and presumably have a philosophy more appropriate to the British environment. Nevertheless, I've heard several times that American managers are sought after, for any number of reasons.

Now, this is a subtle trend in the UK (and one that has probably run its course), but in China, Taiwanese CEOs are accustomed to being a special elite. Perhaps they and non-Chinese investors are entirely mistaken, but I'd be the wrong one to ask. The point is, Taiwanese have built up internationally-regarded corporate governmence methods and are unusual in competing effectively from a tiny home base (i.e., without a large protected domestic market to shore up their earnings). They are justly proud of this and like managers everywhere regard this as something that makes them valuable everywhere—much as managers from GE imagine they are God's gift to investors the world over.

Taiwan to China: Taiwanese investment into China has become a crucial source of growth for China's economy and a staple for Taiwan business. Taiwanese manufacturers dot the mainland. Towns up the Pearl River Delta are nicknamed "little Taipeis". Despite the saber-rattling between the two countries, back-channels have always operated between the renegade and the giant. In the last ten years, various businesses from the island have pumped US$50 billion across the strait, often via third country entities to work around the legal, and highly political, hurdles.

No surprise here. What is the managerial role of the Taiwanese who locate to these enclaves?

Making chips for design houses and IDMs requires close and immediate contact with their engineers, something that could not work for TSMC if the engineers are mainland Chinese. The political strife with Beijing has kept Taipei wary of illegal migration from China to Taiwan, and the visa application process is prohibitive. [...]
"For foundries, the most important success factor is time to market," says YC Lin, [...] of the Taiwan Semiconductor Industry Association (TSIA), [...] "It takes face-to-face discussions with the engineers to examine the quality of the product, and if the engineers can't get visas, that will ruin their cycle," he says. TSIA has been actively lobbying Taipei to ease these restrictions, but the government remains unwilling, knowing it is a deterrent to the migration of talent and technology. "As soon as [Taiwan] lifts the transportation ban, they can reduce the motivation of companies to move to mainland China," says Lin.

Yes, this is much the same as with any adjacent pair of countries with widely disparate incomes.

TSMC's and UMC's forays onto the mainland are not necessarily unwelcome for foundries already operating in China. Frank Lai, CFO of [...] CSMC, sees their future investments as more beneficial than competitive. CSMC is a joint venture between a Chinese electronics company and a US-incorporated venture capital fund backed by a Taiwanese chief executive. It makes 150mm wafers that will not directly compete with the new Taiwan heavyweights. One of Lai's concerns is a lack of support infrastructure for testing and packaging chips. As such, some wafers that CSMC makes in China are sent to the Philippines for packaging, and then to Hong Kong for testing, and then re-imported to China. This extends the cycle time. "When the Taiwanese start to come in, you will see an influx of upstream and downstream support to make the whole industry viable," he says.

This is from a trade industry publication, so the author focuses on the obvious technical reasons for this sort of arrangement. I'm sure the idea of "capitalists from First World Taiwan plundering prostrate Third World labor" was the furthest thing from the author's mind. However, one thing illustrated by this is that the Taiwanese managers are required in order to enable new forms of FDI and portfolio investment in China. This is weird, since China exports capital to finance the rest of the world's trade deficit with it; that capital "returns" with an American board and a Taiwanese manager as supervisors. The reason is pertenant to my story: China has foreign currency reserves, but lacks the globally-deepened financial institutions to manage them. It therefore is a passive actor, buying US dollar-denominated securities. Indeed, foreigners earn a huge share of the investment income on Chinese holdings of foreign currency (AsiaTimes).

The nationalist spin here is that Asians remain barely accepted as elites in the West. "Trans-Europe," my notional cooperative union of Europe and urbanized regions settled by Europeans, has not fully accepted Japan and other East Asian countries, despite their successful adoption of most Western standards of "civilization." North Americans and Europeans run each other's companies and collaborate on mutual defense, but East Asia is stuck in the cold.

For this reason, there is an old Asian fantasy that one's own country is uniquely equipped to lead a Trans-Asian union. The Japanese made a bid to liberate Asian nations and unify them into a single political unit—by replicating the European conquest of Asia! However, the Asia-for-the-Asian idea keeps cropping up. PM Mahathir Muhammed tried to encourage Japanese nationalism as a counterweight to American-Australian influence in the region—to no avail. Within China, Taiwanese are of course a tiny minority, but they can appeal to the principle that they have the tough, firm hand (as business managers) to guide China's industry into something that can compete anywhere in any industry. Mainlanders may possess the skills as individuals, but the institutional framework for managing modern Western-style corporations does not presently exist in China and will require some years to develop.

(A useful source of information about this was "Taiwan's China Plays," Forbes, Jan '04. It mentions that Taiwanese investors hold over $100 billion in the mainland; that's $4400 per person in holdings!).

Comments on this Post:
My picture is sketchy I've decided and not "naive" after all --that takes a certain youth, vigor and overall bounce that I can no longer muster.
Those that could flee Mao in 49 did, no? That generation of capitalists may no longer have much clout but the next couple do and I'd say that fact, their ancestory, carries the same favored status that a McLean would carry going back to Scotland.
Not that I didn't like the strong firm hands line but there are Japanese hands like that and they are still regarded with piles of suspicion there, no?
What I really wanted to do was pick on the Taiwanese (while DOR, an HKer, was not watching) who I would have hoped had reestablished connections in China with an emerging entrepenuerial class. Together, I thought, these 2 groups might play the nationalism card for their mutual benefit (more military hardware? distraction from deteriorating domestic issues?).

But that was not to be. No. Turns out there are no Chinese smartee-pants, just the chop-stickers. Oh well. And just when I was going to launch a salvo about how much easier it would be to ignite 'nationalism' today with a population weaned on 50 years of mind-numbing TV.

Posted by: calmo at April 19, 2005 07:41 AM

Those that could flee Mao in 49 did, no?

I suppose, but you might be interested to know that Rong Desheng remained behind in Shanghai, and handed over control of his family's 24 businesses to the government (he managed them until he retired, after which they passed to his son Yiren). Rong Yiren later got permission from Deng Xiaopeng to launch CITIC, a sort of massive financial holding company that operates some 44 banks.

The McLeans are Scotch-Irish. I'm a MacLean (Hebridean Scot). Both are awfully common. There has not been, however,the same historic dynamic. Japan acquired Taiwan in 1895 after victory in the 1st Sino-Japanese War; after WW2, it went back to the Nationalists, who were the losing side in the Chinese Civil War (to '49). So the Taiwanese nationalists (as opposed to Chinese Nationalist KMT) have tended to downplay resentment of Japan, and fringe elements of the TN have visited the Yakusuni Shrine.

If, by 2050 or so, Taiwan is in fact as well as in law, a part of China, then I can guess than the fringe will have emigrated to Japan. But there is clearly a yawning gulf of historical feeling stemming from the different narratives of the War, and even the marginalization of Taiwanese nationalism will not hasten the full acceptance of Taiwanese.

One thing I keep thinking of is the distinctive revolutionary history of Fujian Province (across the Pescadores Strait from Taiwan). This province has a slightly larger population than Taiwan, and two distinct native dialects of Chinese (Hakka and Min Nan); it's sort of the Scotland of China, with high mountains and a sparse population prone to getting in boats and propagating. About half the speakers of Min Nan live outside of China.

After the Revolution, because of the constant war footing, Fujian was de-industrialized and became a peculiar anomaly of poverty in the midst of the rich southeastern provinces, and the superduper rich Taiwan.

Posted by: James R MacLean at April 19, 2005 09:31 AM

Ah. Excuse me for that typo and thank you for setting me straight about those pounchy southern McLeans and not those hardy northern Macleans who are made of much stouter stuff.

Now I was hoping to hear of just such a person, Rong Desheng --someone who was entrepenurial and cooperative and could bridge the ties to the outside world. And what better and easier connection than to those old colleagues that fled to Taiwan?

These guys, middle class entrepeneurs, senior party officials, businessmen, seem to be straddling the ideological dichotomy that we hear about in the press. They seem to be benefitting personally from compromising ideologically. They don't care about the nation so long as they do well. Sorta.

Or maybe the Taiwanese are looking at this venture as a proselytizing mission to the young communists in their midst? I don't suppose the tide goes the other way with China counterparts handing out little Red books in Taiwan.

I am hopeful about this relationship being cooperative and not confined to their own personal benefit.

Posted by: calmo at April 21, 2005 02:13 AM

Actually, my wife is Scotch-Irish.

There are four clans of MacLeans; most are descended from the Scots, who (surprisingly enough) originated in Ulster. Dal Raida was a Scot kingdom that included the Province of Ulster as well as the western (Gaelic speaking) part of Scotland. The apex of the Ulster nation was around the 6th cent. CE; they were, I've heard, Arianist and their national bard was Ossian.

The westernmost hotbed of MacLeanism was the Hebridean island of Tiree, and I understand the Tiree MacGilleans (later, MacLean; MacGillean means "Servant of St Iain") were aboriginal Britons, not true Scots; they were very acrimonious, and this is the origin of the "No True Scotsman" argument.

In the early 17th century, the English contrived the settlement of a large number of "turbulent" Scots, including the McFarland (also spelled MacFarlane, it appears) in Ulster. My wife is anxious for all to know the moon was known as "McFarland's lantern" and they used to steal cattle. Before that, the MacFarlanes appear to have lived in the lands to the north of Edinburgh and Glasgow, and they fought with Robert the Bruce in 1319.

Posted by: James R MacLean at April 22, 2005 07:16 AM

Scotch is the drink, no? [and Scottish, the drinker]

I feel no confidence in being able to weigh the China/Japan rhetoric. There is the language barrier of course but also the cultural one where saying you're sorry 17 times may be only part way there to a genuine apology or 15 times over-kill, negating any apology in the past. Am I the only one having this problem of sorting out posture from position?

I need to believe that the cultural differences between the Asians are not radically different from those of occidentals. Surely they can get along better than the Europeans? No? Surely they can get along better than the English and the Scots then? No? Surely better than the McKenzies and the McDonalds? Is there no limit to their uncivility?

Posted by: calmo at April 25, 2005 06:06 AM

This is getting complicated. "Scot" refers to the people from the northern part of Britain. However, there are two national dialects. "Scots" is, like English, descended from Low German; Robert Burns wrote a lot of poetry in Scots, which is very similar to English. Scots is spoken in the southern and eastern parts of the country.

There's also a Scottish dialect of Gaelic (Ghaeligh), which is of course a Celtic language that originated in what is now Ulster. It was pushed to the edges of Britain by Anglo-Saxon invaders in the 6th-8th century. I am not at all knowledgable about this language, although naturally my paternal ancestors spoke this one until the 1800's (by then, in New Brunswick).

Originally, "Scot" referred to people from Ulster.

Surely they can get along better than the Europeans? No? Surely they can get along better than the English and the Scots then? No? Surely better than the McKenzies and the McDonalds?

I am of the opinion that the clash between the Chinese and the Japanese is a purely modern one. Sure, there are historical antecedents, but I believe these are irrelevent. If reasons of state had not favored a revival of bitter invective towards the premier source of FDI in China, the Chinese would generally reserve a lower ambient level of competitive animus towards the Japanese, but scarcely anything worse.

However, it should be noted that Americans are mostly descended from European settlers; in WW2, our leaders cast the war in ideological terms, since ethnic Italian and German Americans were required to fight in the war. Germans, likewise, were less fearful of defeat by American and British forces, than by Russian ones. In contrast, Japanese, Koreans, and Chinese identify as sharply distinct nationalities who have "always" had the same political stakes.

Posted by: James R MacLean at April 25, 2005 07:42 AM