Quo Vadis => localisation policy in Taiwan

Written by Manuel Zehr.

Image credit: Taichung, Taiwan by Andy Enero/Flickr, license CC BY-NC-ND 2.0

When speaking about infrastructure, energy, or engineering projects in Taiwan, along with international organisations/private companies under any DPP party administration, there is one major buzzword you always will hear which is “localisation”.

What exactly is the definition of “Taiwanese localisation”? The meaning varies depending on the industry and segments within it. In 2019, the BCCT (British Chamber of Commerce Taipei) and BOT (British Office Taipei – acting embassy replacement) held an event between the former minister of economic and communication affairs, Mr Sheng and a small group of British business people from the offshore wind and geothermal power industry. They asked him precisely the question above, and his answer was: ”Give local Taiwanese firms all your money, technology/ know-how and hire Taiwanese people only and you can enjoy the fruits of our generous Feed in Tariff policy as a 49% shareholder.”

Of course, Mr Sheng believed that nobody else was listening and the room was isolated. Both directors of the British official doms got an inadequate translation and spent more attention on the buffet. Today, Mr Sheng has been promoted to the Vice Prime Minister, and it clearly demonstrates that on that evening, he spoke the mind of the DPP administration.

The DPP party has been branded as a “Taiwan Independence Party” by the former George Walker Bush administration. However, the DPP has never stood up for the grounding principle of its party: an independent Taiwan republic. Instead, it has stood for a type of Taiwanese nationalism. In terms of economic policy, this has the following implications:

• Manufacturing if possible, in Taiwan at best 100%.
• Entire assembly lines in Taiwan done by Taiwanese people.
• If possible, all investments based on foreign capital are converted into New Taiwan Dollar currency.
• License and permits only for locals.
• 100% on anything from China, which includes not only hardware but also human resources and financial capital.
• Taiwanese part always shall be 51% shareholder and direct FDI at 49%.
• If possible, they are to be sourced only in Taiwan, and it has to have as little imports as possible.
• After the local Taiwan market is satisfied, an industry will aim for exports in the region, thus creating a Taiwan hub.

All of this might cause some eyebrow-raising, and consequently, this brings one question to the fore:

What is the difference between the People’s Republic of China and the exiled Republic of China concerning the “province of Taiwan” and its de facto democratic regime?

We will answer this question in direct comparison before explaining its exact daily practice. Let us start with China:

• China is a world power on exports. In detail, it reveals a workforce focused on labour-intensive exports.
• Thanks to the “one belt, one road” initiative, one can see China has excess trade routes and natural resources. Sending all necessary workforces to these destinations shows how urgent China needs full employment for its people and is not able to employ developing world human resources.
• The Chinese Government has enormous political leverage at its disposal to strengthen points of A. and B.
• China wants to reduce its imports of high-value products and services by merely taking over or merging high tech firms and unique skilled professionals (also known as hidden champions) into its state-owned firms. It is also preparing its firms for some simple “copy and paste” practice.
• After bolstering its ranks, a lot of Chinese citizens have now become European citizens. As such, the UK is offering its citizenship for 3 million £ per head. What is more, Malta (of which Jack Ma is a citizen) is even offering citizenship for lower rates.
• Consequently, state-controlled individuals eventually push through national interests such as G5 by Huawei, or by making Chinese pharmaceutical the new standard.

Strange enough, it does not appear to be a concern to European citizens or its governments— they do not seem to have adequate laws protecting its economies from such measures.

The democratic elected de facto regime in Taiwan provides a very different perspective. The DPP party and its administration simply want to protect its economy and interests by entwining itself on an international stage. Thus, it is often misunderstood by the outside world. Let us break down the best-case scenarios flowing from this:

• Taiwan, due to its international status—and due to pressure by China—can not be a member of many essential organisations, such as the IMO, IMF, OCED, WTO and APAC. These are organisations that provide Taiwan with little cooperation and zero political leverage.
• The so-called Trade Offices or Institutes of some countries are often referred to as a status quo embassies. This is misleading because they work below the level of statehood recognition. Consequently, visits on a ministerial level are rare, and the big five (President, Vice President, Prime Minister, Vice Prime Minister, Minister of Foreign Relations and Defence Minister) are entirely isolated.
• Even Taiwanese official doms are named Taipei Economic and Cultural Offices, and the city name is used for promoting private and business ties.
• Since the 70s Taiwan has become part of Japan’s keiretsu supply network and many other markets. Furthermore, the majority of all European bikes and fasteners come from Taiwanese OEM/ODM manufacturers. Thus, sometimes, Taiwanese brands such as Gogoro, Giant, Merlida and Kymco are sold and marketed.
• Gogoro entered Europe from Berlin in cooperation with Bosch, and Ørsted was allowed to develop the first two offshore wind turbines after many high state visits from Denmark.
• Taiwan is allowing, on a nation by nation basis, experts to visit and work in Taiwan for 180 days visa-free. Moreover, in return, a lot of international firms are willing to train Taiwanese in their home country.
• Through this win-win situation, the DPP hopes these partners will speak up for Taiwan as Taiwan cannot find many ways of getting around the hurdle of statehood requirements.
• The peak would have to have high-level mutual agreements fostered into law, such as Free Trade Agreements and Smart city to city cooperation.

Of course, if you ask any Taiwanese businesspeople, you will find a lack of trust and confidence in the Government. Someone like myself often compares Tsai Ing-Wen to the former Afghan president, Hamid Karzai. He was often called the “President Mayor of Kabul.” Thus, I call her Madame President of Taipei. This is because her localisation policy in daily work is unrealistic and is often considered pure fantasy by some of Taipei’s hyper bureaucrats.

For the offshore renewable energy sector, the development of a robust infrastructure (ports) is essential. The decision was made on Taichung port only out of the favour to support her friend and former mayor Lin Chia-lung, who lost the elections as mayor and was rescued through appointing him minister of transportation and communication.

Despite the apparent political agenda, it is essential to understand that Taichung port is very far from the city of Taichung. It has a small population, tides, strong wind currents and no infrastructure suitable for the offshore renewable industry. The DPP came up with the proposal to make developers pay through a construction subscription of 1 million Euros until said construction is completed through the state-owned Taiwan International Port Cooperation or TIPC. However, after four years passed, and without much progress, suddenly the TIPC decided to lease Ørsted for 20 years. Therefore, it allowed the company to carry out all its own construction. Why it was not allowed construction rights from the outset was purely a face-saving issue.

Another major issue in the solar and geothermal power industry is the apparent lack of land ownership management and soil drilling licenses issued from the Central Government. In the case of geothermal ITRI, such an endeavour merely needs to carry out harvest anywhere near a hot spring. Nevertheless, to do such survey work, one must drill the proposed area. To do that, one also must have a license for drilling above 2000 metres depth, which is carried out by the CPC (China Petrol Corporation = state-owned oil and gas enterprise). Furthermore, the areas with the most potential are mainly located in native Taiwanese land (Taiwan has 37 Aboriginal tribes) or national park (nature protection resorts).

Concerning solar power, the Government wants fish farmers—Taiwan farms fish and other seafood in Tainan, Chiayi, Kaohsiung and Pingtung—onshore so it can install solar plants in proximity to them. However, nobody asked these farmers if they want this carried out on their soil. This is an issue because solar power firms cannot ensure seafood safety and quality by generating electricity in proximity to marine life.

Despite these technical issues, solar panels require much maintenance due to the amount of dust in Taiwan. This is obviously not on fish farmers’ priority list. However, A simple injection of cash into a local solar manufacturer will not solve this challenge. Indeed, very few private firms, such as former Infrawest (now merged into WPD), go into local communities and employ local people for solar projects.

The most sensitive localisation issue will always be the offshore wind industry. Offshore wind requires an up and running maritime engineering industry. Thus, Denmark in the 90s, along with the UK (early 2000s), kicked off the offshore wind industry. They used the oil and gas sector to piggyback and build on this burgeoning industry. Taiwan has no oil and gas sector, and the maritime industry is limited to container liner, fishing boats, many harbour tugs and a minor salvage and yacht business. There is nothing substantial there to build anything, but at best a surveillance fleet with limited support.

The exile government in Taipei has the world’s most stringent regulations, which are:

• Each vessel must be reflagged with a Republic of China flag or must be built in Taiwan.
• Only local CR class allowed.
• ⅔ of the crew must be ROC citizens.
• The age of the vessel must be below 12 years.
• A 100% ban on anything built in China, even a rescue boat.
• A primary rule is that a joint-venture partner will own the vessels and 51% of the entire business, for merely being Taiwanese.

This timeline is exceptionally narrow, having just five years. Still, any player in the market has to use local human resources no matter if they are qualified and trained or not. Thus, it drives up costs up, causes delays and the cultural differences are sometimes enormous. An official of former mayor Han in Kaohsiung said once in 2019: “Don’t come here, we don’t speak English,” which was one of the reasons why his own inhabitants impeached the mayor.

I found solutions to all these issues because I have been in procurement and, therefore, networking and Guanxi building for an extended period. From the bottom of the supply chain heart, I would like to send a message to the distant Government located in Taipei, which is:

“We don’t want or need a Taiwan first or Taiwan number one policy. We need and want a global solution for this energy in order to work. A Taiwan best-qualified solution is one for the planet, one for the people, along with sustainable energy solutions for us and the world and generations yet to come.”

Manuel Zehr was born in Bremen, Germany. After his studies at the University of Applied Science Bremen, where he majored in Japanese Management, he discovered an internship in Taiwan. After learning about, and understanding the value of, Taiwan for Japan’s Kairetsu supply chain, he studied for his Bachelor of Business Administration. After collecting various experiences, and industrial know-how, he founded Formosan Business Support Co.Ltd., which solely serves the purpose of developing an offshore renewable industry in Taiwan.

This article is part of special issue on energy and environment.