Japan’s industrial rose for the first time in six months and at twice the pace predicted by economists, but the first investment deal in Taiwan by China has captured attention across Asia.
The 1.6% rise in Japanese output was good news, as was the forecast of more to come in April and May, but it was a half a billion telecoms deal in Taiwan that stunned markets yesterday.
It also overshadowed Japan’s central bank, leaving its key interest rate steady on 0.10%.
Japanese factory output rose for the first time in six months as manufacturers increased production to replenish inventories, following a run of sharp falls in previous months. Japanese shares rose strongly
Taiwanese shares had their biggest gain since 1991 in the wake of the deal’s announcement.
So great were the gains that the MSCI Asia Pacific Index had its best month in April since 1989.
State-controlled China Mobile agreed to buy 12% of Far EasTone Telecommunications Co, the first investment in Taiwan by a Chinese company since the Civil war ended in 1949.
The news, announced late Wednesday, came after trading on the Taiwanese stock market had closed. The market yesterday had its best year in almost two decades.
While many Taiwanese companies have investment in China (often through offshore subsidiaries) and are probably the single largest group of investors in China, investment the other way has been held up because of the political tensions between the two countries.
The NT$17.8 billion ($US529 million) purchase, announced by China Mobile yesterday will shake markets through the region and even wider.
It shows that China and Taiwan are no longer at each other’s throats, that both countries, especially China’s current government, believes it can do more to win back Taiwan commercially and economically by improving ties, and it lessens strategic tensions with the US which has supported Taiwan’s independence for the past 60 years.
The Chinese government said this week it would end a ban on investments in the island on May 1 following an agreement to open cross-border operations for financial-services companies, expand direct flights and cooperate in fighting crime.
But the move by China Mobile is not a financial transaction: it is in a sector where China has been a major player domestically and increasingly internationally through its various state-owned companies.
That such an important deal came so quickly indicates that China wants to send a message that it is open to doing deals, even with countries that it has had difficulties with in the past.
It’s also a signal to the US that its companies have more money and freedom, and interest to do deals with Taiwan, and that China wants political, and business (not to mention cultural ties) whereas the US has a more political approach, with some business interest.
But given the current recession and global financial crunch, it’s also a message from China to the US that it and its companies have the money to do deals at will, wherever they like and that the financial clout of China is not to be denied.
So long as the deals have commercial and strategic sense from China’s point of view, they could be done. It’s why China is attaching so much importance to the Chinalco purchase of a major stake in struggling Rio Tinto for $US19.5 billion.
The message from the China Mobile deal is ‘there are other deals to be done if you reject Chinalco’.
The statement from China mobile mentions the strategic nature of the deal repeatedly:
"The strategic alliance will facilitate the expansion of the Company’s business in Mainland, Hong Kong and Taiwan and help the Company provide more comprehensive services to its customers, which is vitally important for the Company’s future development as cross-strait communication grows.
"Specifically, through the alliance, the Company believes that it will further expand its range of services by providing enhanced, better customised options to individuals who travel across the strait as well as business enterprises operating in both Mainland and Taiwan.
"Furthermore, the Company considers that the cooperation will enable the Company to better explore future technological trends in the mobile communications market and accumulate advanced technological and operational expertise in areas such as 3G and next generation technology, since Taiwan is in a more advanced stage of development in both 3G-technology application and value-added data services and both parties are interested in exploring opportunity for cooperation in research and development of communication standards."
Clearly China sees a way of transferring ideas, technology and know-how back to it from Taiwan from this deal.
Bloomberg quoted a Taipei broker, C.Y. Huang from Polaris Securities as saying: “This is a landmark deal. China Mobile will lead the way for other Chinese companies that have been waiting to invest in Taiwan but were hesitating. This will open the floodgates for more Chinese investments into Taiwan.”
Being a stockbroker, that’s a natural reaction. He sees deal flow and money to be made, but the underlying logic can’t be denied.
Far EastTone also talked about the strategic importance of the deal in its statement (everyone’s one the same wavelength it seems).
“This strategic cooperation will enhance cross straits exchange for the benefits of the enterprise and retail customers of both companies, creating a win-win scenario,” Far EasTone said in a statement.
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