A Note on Corporate Overseas Investment Decision Priorities of Taiwanese Direct Real Estate Investors

By Hsieh, Chao-i | The Journal of Real Estate Research, January 1, 1997 | Go to article overview

A Note on Corporate Overseas Investment Decision Priorities of Taiwanese Direct Real Estate Investors


Hsieh, Chao-i, The Journal of Real Estate Research


Chao-i Hsieh*

Abstract. Data generated from a situationally adapted analytical hierarchical process (AHP) questionnaire focusing on two politically confrontational countries (the People's Republic of China and the Republic of China on Taiwan), provides a revealing assessment of the decisionmaking priorities for three types of direct foreign investment, namely wholly foreign-owned subsidiaries (WFSs), equity joint ventures (EJVs) and contractual joint ventures (CJVs). Cross-case comparison shows distinctly different priorities among the three types for the two countries, and that country selection entails more caution than does the subsequent selection of city. Whereas political environment factors are of only marginal importance for domestic decisions, they are of primary consideration in overseas investment decisions.

Introduction

The economic reform and open door policies enacted in mainland China in 1978 have eased earlier hostilities to foreign investment and trade and have opened China to the world economy, and to Asia in particular (Yeh, 1995). Concurrent with the rapidly growing global trend, Taiwanese overseas direct real estate investment in mainland China has increased remarkably in recent years, despite a variety of political and economic risks. For instance, although there is essentially no securitization of Taiwanese real estate investment in the People's Republic, many investments are undertaken under the name of companies incorporated in Hong Kong or other countries.

According to Sen-Chung Hsieh, president of the Central Bank of the Republic of China, ten billion U.S. dollars have gone from Taiwan to mainland China since Taiwanese investors, escaping a depressed domestic real estate market, began to respond to the real estate incentive policy instituted in the People's Republic of China. Although the Tiananmen Square massacre in 1989 cooled the investment fever considerably, a worsening domestic market, double-digit growth of the mainland economy and Deng Xiao-Ping's announcement of a more liberal economic policy during his South Eastern Provinces tour in 1992 made investors forget the massacre and speed up their investments. In terms of economic and urban development, the Special Economic Zones (SEZs) and open coastal cities have benefited more from the open door policy than inland cities (Yeh, 1995). With respect to real estate investment by Taiwanese investors, similar regional patterns are observed, with investment concentrated in such cities as Shanghai, Beijing, Guangzhou, Shenzhen, and Wuhan (Hsieh, 1995).

Taiwan (The Republic of China, or ROC) and mainland China (The People's Republic of China, or PRC) are now under the control of two politically confrontational regimes. Since the mainland Chinese government started to release the rights of nationally owned land to the private sector in March 1987, there has been approximately 5.5 billion U.S. dollars worth of real estate investment by the Taiwanese in mainland China (Hsieh, 1994). However, there has not been any analogous reciprocal investment from the mainland to Taiwan. This is due not only to explicit prohibition from both regimes, but also to the significantly less affluent mainland Chinese economy as illustrated in Exhibit 1.

Because of this conspicuous imbalance, and because of the significant amount of real estate investment that has been made despite political adversity, it is important to study the real estate investment decisions between the two sides (a research problem scarcely touched upon in previous literatures). Basically, there are three types of Taiwanese real estate investment in mainland China: wholly foreign-owned subsidiaries (WFSs), equity joint ventures (EJVs) and contractual joint ventures (CJVs).1 The variety of these forms of investment, combined with the politically confrontational situation mentioned above, leads to the hypothesis of the present study: investors in each of these venture categories have distinctly different priorities tempering their decisionmaking processes. …

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