Remarks by Principal Deputy Assistant Secretary for the Bureau of Economic and Business Affairs Kurt Tong at the Asian Venture Capital Journal Taiwan

Remarks by Principal Deputy Assistant Secretary for the Bureau of Economic and Business Affairs Kurt Tong at the Asian Venture Capital Journal Taiwan Forum (Photo: AIT Images)
Remarks by Principal Deputy Assistant Secretary for the Bureau of Economic and Business Affairs Kurt Tong at the Asian Venture Capital Journal Taiwan Forum (Photo: AIT Images)


Good morning everybody, it is a pleasure to be here. I used to live here in the 1980’s and I must say there weren’t many days where the air was as beautiful as it is today.  It is an extraordinary opportunity for me to be back here both to speak to this very important conference, but also to share in the joy of a Taiwan which has developed so rapidly with an eye to the environment.

I would also like to thank the people who organized this most excellent event today.  Particularly Allen Lee – the publisher of the AVCJ, a fine publication, and the chairman of today’s conference.  I would like to thank him for bringing together this very important group.  I would also like to say thank you today to Andrea Wu.  It is important to recognize the fine leadership of our American Chamber here in Taiwan.  If you would like to do business with the United States, please do so, and please make good use of our American Chamber.  Finally, Vice Chairperson Huang, I appreciated your excellent and forward-looking remarks.  Thank you for coming today to speak to this audience about this very important topic of foreign investment, private equity, venture capital, and how all of those things come together to produce more economic growth, produce jobs for all of our people and ultimately greater prosperity.

U.S. Engagement with Taiwan

Let me start by recognizing the fact that this year is a special year in the U.S.-Taiwan relationship.  It marks 35 years since the Taiwan Relations Act (TRA) was signed into law.  As you all know, the U.S.-Taiwan relationship is grounded in history, shared values, and also a common commitment to democracy and human rights.  It is important to recognize that fundamental underpinning, and recognize that fair play, transparency, and democracy are a key part of what brings us together as economies as well as a people.  Over these years, Taiwan has grown to become one of the world’s twenty largest economies.  Today, it is the United States’ 12th-largest trading partner; a very important partner for the United States.  The United States, I’m happy to say, is still the largest single foreign investor in Taiwan, and that investment reinforces the competitiveness of both of our economies through integrated supply chains and delivery of high-value services.

Today’s topic is extremely timely.  Last year, in 2013, the United States and Taiwan put forth a Joint Statement on Principles for International Investment. That statement reaffirmed our shared commitment to open and non-discriminatory investment environments and a level competitive playing field.  Earlier this month, the APEC Economic Leaders met in Beijing and reiterated the fundamental value of free and open trade and investment as the bedrock of economic growth and development, just as they have time and again over the history of APEC.

In fact, it is important to recognize that investment is a two-way street.  Today I will be talking quite a bit about investment in Taiwan, the value of that, and some of the things that the Taiwan authorities might be able to do to improve the investment environment and attract more investment into Taiwan.  At the same time, we are also working on that in the United States.  The Obama Administration has identified Taiwan as a focus market under its SelectUSA initiative to attract business investment in the United States.

You may have heard about SelectUSA.  If you have not, I encourage you to check out the website at the Commerce Department.  It is an excellent initiative for us to make information flow regarding the United States as an investment environment more available and easier to access and understand.  We have a federal system in the United States with 50 states all competing for foreign investment, so sometimes it gets a little confusing.  SelectUSA is an attempt to make all of that much more clear.  President Obama himself is directly behind this.  Taiwan sent the third largest delegation to the SelectUSA summit hosted by President Obama last year, and there will be another summit coming up in March of 2015.  I encourage all of you, if you are interested in investing in the United States, to please come to that conference in March.

This two-way aspect demonstrates our recognition, in the United States, of the important role that Taiwan’s dynamic entrepreneurs and visionary leaders can bring as a partner in the U.S.’s broader strategy of rebalancing to the Asia-Pacific region and contributing to the continued economic growth and prosperity of both Taiwan and the United States.  As you know, Taiwan has been a long-standing partner for the United States and our companies, often with shared interests and values.  Taiwan firms are often key partners to U.S. firms, helping navigate the challenges of establishing operations in Asia and facilitating the high-quality, low-cost manufacturing that has been the hallmark of globalization.


Let me say a few words on the concept of competitiveness.  I think that is an underlying theme of today’s conference.  “How can our economies be competitive?” “How can we utilize private equity and venture capital to be competitive?”  Years ago, when I was in school, economists taught us that land, labor, and capital were the three factors producing economic growth.  I would posit that in the modern economy, it is actually technology, money, and the ability to market; to put technology and capital together and get it to the customer in a way that they can understand.  I would posit that just like Silicon Valley in the United States, just like our other growth areas like pharmaceuticals in different regions in the United States, Taiwan has all three of those elements: technology, cash, and the ability to market.  The real question is “how do you bring those together?”  The ‘secret sauce’ of Silicon Valley is the fact that the people who are good at marketing, the people who are good at technology, and the people who are good at raising capital, often venture capital, actually talk to each other.  It is as simple as that.  Any environment that increases lateral communication between marketers and financiers and technology people is going to succeed as a market.  What does that mean for governments?  That means that governments, as they regulate these sectors and push forward towards development, need to try to avoid setting up rules that create barriers between the financiers and the technology people and the marketers, and instead help bring them altogether into a competitive dynamic.

U.S. and Taiwan Regional Economic Objectives

Let me say some words about the regional economy and the role of the United States in the Asia-Pacific regional economy.  In today’s world, America’s future prosperity and security are intertwined with the prosperity and security of the Asia-Pacific region.  That is just a fact; it is both an assertion and a fact.  In recognizing this, President Obama has made a strategic commitment to rebalance our interests and investments to this region.  The President set out a clear, over-arching objective for the United States in the region: To sustain a stable security environment and advance a regional order rooted in economic openness, peaceful resolution of disputes, and universal rights and freedoms.

Of course, Taiwan has regional economic objectives of its own.  Taiwan firms have long been at the forefront of regional manufacturing supply chains.  They have led the way into mainland China, and they have been in the vanguard in other new markets around Asia.  But market conditions continue to change.  A significant amount of Asia’s manufacturing, including Taiwan’s, has been geared to producing components for final assembly in China and for export to North America or Europe.  As the mainland’s economy continues to grow and diversify, the challenges are becoming more complex.  Economies that used to be complementary, such as Taiwan’s and the mainland’s, now find themselves to be competitors in some sectors.  Taiwan therefore faces new challenges and new requirements to be nimble and well integrated, both for supply chain management and for access to final markets.

In this context, Taiwan has already begun to reform many parts of its economy with results that we can already see.  The financial sector has seen the most rapid opening largely due to some of the fine leadership in the Taiwan authorities addressing financial questions.  Some of that rapid opening within the financial sector includes further opening and expansion of overseas banking units; creation and expansion of overseas securities units, and now, overseas insurance units; and the removal of a number of trade irritants, including requirements for data localization.

Taiwan has called for its financial institutions, including banks and insurance companies, to increase their presence overseas, help overseas Taiwan firms, and increase their own regional competitiveness.  But while these changes are positive steps, let me be clear that they are only the first steps in a long process to make Taiwan more integrated, and more competitive, in the region and the globe.

Regional Economic Arrangements

There is a lot going on in the region, for example, on trade agreements.  While much of Asia has been rapidly integrating in recent years through FTAs, thus far, Taiwan has largely been left out of these deals.  I think that there is hope that this will change in the future.  The United States welcomes Taiwan’s interest in joining the Trans-Pacific Partnership (TPP) at a future date, and we look forward to exploring this idea together.  Right now you in Taiwan know your own economy best.  I think that you understand what Taiwan needs to do to in order to be ready to join a high quality, high impact, high standard, comprehensive free trade arrangement such as the Trans-Pacific Partnership.

What we in the United States would welcome seeing at this point is an open dialogue and open public discussion in Taiwan of some of these issues, and of the kind of strengthening that Taiwan can accomplish in its economy to prepare it for participation and entering an agreement such as TPP.  So we hope that Taiwan will continue to aggressively improve its competitiveness; competitiveness through aggressive unilateral liberalization. This kind of movement is important on trade, including at-the-border issues such as what we have experienced with agriculture, but also with behind-the-border regulatory issues such as pharmaceuticals, medical devices, and intellectual property rights.  Perhaps this is most important in this issue area that we are discussing today, of cross-border investment.

Taiwan and Private Equity in Focus

Let me say a little more about private equity and venture capital and the role of innovative financing in competitiveness.  To stay at the cutting edge of manufacturing, Taiwan’s firms must have access to global expertise.  They must have access to global financing and investment in order to hone their competitiveness.  Again let me highlight what Taiwan has accomplished so far.  In January of this year, President Ma called for economic reforms and a full review of current regulations, driven in large part by the desire to prepare Taiwan for the economic changes that will be necessary to integrate more fully in Asia’s – and the world’s – economy.

In fact, if you look at the numbers, foreign direct investment (FDI) flows into Taiwan now lag behind those of others in the region.  In 2012, FDI flows into Taiwan were $4.7 billion, while they were more than $16 billion for Korea, which in economic terms is a real competitor for Taiwan.

At a time when private equity has become one of the most active channels of investment capital and managerial expertise worldwide, Taiwan has attracted little private equity capital in recent years.  I am not alone in highlighting these current challenges faced by Taiwan’s leadership.  Indeed, I believe I am echoing many of my counterparts among the Taiwan authorities who have raised these issues.

To belabor the point, in an increasingly integrated global and regional marketplace, Taiwan simply cannot afford not to have private equity, which is a significant driver of global direct investment today.  Taiwan’s leadership recognizes this.  The reforms that they have initiated today, as we heard from the minister a few minutes ago, are designed to further integrate Taiwan both regionally and globally.

At multiple points along Taiwan’s remarkable growth trajectory over the past six-plus decades – as it has transformed from an agricultural to industrial economy, and now to an economy at the highest end of value added – a steadfast commitment to economic openness and a bold willingness to reform have consistently carried the day.  This is the kind of medicine that Taiwan can find useful, now more than ever.

Taiwan can benefit from a domestic reform agenda with a strong free-market disposition that includes issues such as improved investor protection, greater transparency in the investment process, and clarity and consistency of rules.

 Let me say something briefly about each of those.  In the World Bank’s 2014 Doing Business survey, Taiwan in fact scored poorly when compared to other Asian countries in protecting minority investors.  It ranks 30th in the world, while Hong Kong ranks second, Singapore third, and Malaysia fifth.  On the question of transparency, the finding of many potential private investors is Taiwan has been among the lowest in Asia in recent years.  The foreign investment approval process needs to be made more transparent, predictable, and efficient.  Finally, on the issue of clarity and consistency of rules in the globalized marketplace, having clear and consistent rules is essential for an economy to attract large, complex financial and investment flows.  Dealmakers, frankly, need to know which investment structures and models are likely to be approved – and which ones are not.  And all agencies, including those on the government commission dealing with foreign investment, as is the case of the United States Committee on Foreign Investment in the United States, need to adhere to the same set of principles.

Financial sector reform is critical, both to Taiwan’s transformation and to recovery of global competitiveness.  Thinking about today’s comments, I think that Taiwan’s progress through the TIFA on investment issues, including improved regulatory clarity for U.S.-Taiwan equity investors, is a main driver of my visit here today, and I look forward to discussion with Taiwan authorities later today and tomorrow regarding these issues.

This year’s Asia Venture Capital Journal (AVCJ) conference seizes on recent reform momentum and is extremely timely in that regard.  As we heard, the FSC has made significant steps in the right direction.  But let me just point out one last thing: true reform requires broad-based work.  It is critical for all members of Taiwan’s Investment Commission to adhere to the more liberalized rules that the FSC has committed to.  For example it is important for the Ministry of Economic Affairs to help clarify the rules governing mergers and acquisitions, to ensure that they are consistently applied.

I think there is also a role for the broader public and the media in looking at foreign investment through scientific and rational understanding of the potential benefit that it could bring to any economy, whether that of Taiwan or that of the United States, or any other country.  Steps like these would align closely with APEC Investment Facilitation Action Plan priorities on stable investment environments, investment protection, and more efficient investment procedures, and thus help generate more investment.

A couple of last things about the region that I wanted to point out while I have you here today: one is a question which many of you may or may not be directly engaged in, but it is a question of infrastructure investment and government involvement in infrastructure investment and the creation of an Asian Infrastructure Investment Bank led by authorities in the PRC.  There is a myth out there in the media that the United States was urging other economies not to sign up for this bank.  That is not the case.  We do not have a United States versus China dynamic in the question of infrastructure investment in the Asia-Pacific region.  What the United States is seeking is good systems for increased infrastructure investment in the region.  Clearly there is a very strong demand signal for government-supported, government-financed and government-guaranteed investment in large, difficult and long-term infrastructure investments in the region.

But thinking about this evolving new institution which was generated by friends of China, the bottom line is that we hope that it will be a good bank.  We would like to hear more about the rules under which this would operate and the safeguard procedures for handling issues such as environmental protection, social protections, and procurement transparency.  Like anything in economics, the devil is in the details.  The United States is interested in hearing more about how that type of institution would evolve, because it would be a negative for the Asia-Pacific region and for regional governments, in both economic and political terms, if this new institution becomes one that gives out easy money for projects that are not well-reviewed as to their social impact, economic impact, fiscal impact, and their environmental impact.  That would be less beneficial to regional development, so it is important that there be quite a lot of conversation going forward about this institution.

Another point that I wanted to make before closing is the question of Taiwan’s special situation vis-à-vis China and economic integration plans going forward.  I think that you have heard this from Americans frequently, but I would like to reiterate that the United States is a supporter of economic integration across the Taiwan Strait.  We are also self-interested, however, so we are also an especially strong supporter of Taiwan economic integration with other nations in the region, including the United States, going forward.

The bottom line is that from the U.S. perspective, putting ourselves in Taiwan’s shoes thinking about economic integration across the Taiwan Strait, with the United States, or with other nations; we think that the right choice is “all of the above.”  Economic integration in all directions is in Taiwan’s interest.  I am absolutely confident that this is well understood by the Taiwan authorities and that Taiwan will remain committed towards economic integration efforts in all directions – towards China, towards the United States, towards Japan, towards ASEAN, towards Europe – and at the same time continue robust efforts at unilateral strengthening of the economy in order to increase its competitiveness.


Let me close by referring again to competitiveness.  Today’s conference is a well-timed opportunity to think about entrepreneurship, to think about venture capital, to think about private equity and to think about competitiveness.  From the U.S. perspective, this is Global Entrepreneurship Week, which is a planet-wide celebration of the innovators and job creators who launch start-ups that help bring new ideas to life and drive economic growth.  As we are meeting here today in Taipei, there is another session going on in Morocco attended by very senior U.S. officials looking at entrepreneurship worldwide, with a particular emphasis on Africa, but also driving home these key principle of openness, creativity and diversity in entrepreneurship, which we think will help drive economic growth going forward.

Here in Taiwan, last September, Minister Kuan of the National Development Council (NDC) publicly called for Taiwan to become “Asia’s Silicon Valley.”  Silicon Valley is a nice place, with a good baseball team, but the ‘secret sauce’ for them, as I previously stated, has been communication, lateral coordination, openness, and information flow.  I believe that Taiwan, which has long been a leader in low-cost, high-quality manufacturing, has a golden opportunity now  to realize Minister Kuan’s dream by bringing together equity, financing, together with technology and marketing expertise and building out a truly competitive, world class, globally integrated, open, fun and successful economy going forward.

I appreciate this opportunity to address you all and look forward to hearing about your continued success.