行政院國家科學委員會專題研究計畫 成果報告
從矽谷到兩岸：“科技金三角“的政經分析(I)
計畫類別： 個別型計畫 計畫編號： NSC91-2414-H-004-034- 執行期間： 91 年 08 月 01 日至 93 年 01 月 31 日 執行單位： 國立政治大學國際關係研究中心 計畫主持人： 冷則剛 報告類型： 精簡報告 報告附件： 國外研究心得報告 處理方式： 本計畫涉及專利或其他智慧財產權，2 年後可公開查詢中 華 民 國 93 年 3 月 15 日
從矽谷到兩岸：“科技金三角“的政經分析(I)
The Booming Economic Interests Between Taiwan and China
Despite the institutional distortion and political intervention, economic interaction between Taiwan and China continued to boom in the past decade. Cross-Straits economic relations are characterized by “civilian governance”. (Leng, 2003, p. 177; Leng, 2002b , p. 267 ) The private sector takes the lead. Table 2 demonstrates the general trend of cross-Straits trade relations in the past five years. Overall trade value continues to grow in an impressive rate. In 2002, China surpassed US and became the biggest market of Taiwanese exports. The 2002 data also shows that Taiwan's export to China constitutes more than one fifth of Taiwan's total exports, and enjoys 24.1% of growth from the previous year. In contrast, Taiwanese imports form China is minimum to Taiwan's total imports. Taiwan's trade surplus to China reached US$ 22.75 billion in 2002. In other words, Taiwan's international trade dynamics are boosted up by its trade surplus with China. Without such trade surplus, Taiwan's international trade will certainly be in deficit. In the past five years, Taiwan's economic dependence on China has evolved from an estimation to reality.
Table 2 about here
activities of Taiwanese business people. However, a huge gap exists between official estimation and real investment value to China. According to official statistics from Taiwan's Ministry of Economic Affairs released in July, 2002, the Taiwanese have invested 22.1 billion US dollars to China since 1992. The mainland Chinese authorities estimate that the "negotiated value" of Taiwanese investments reach US $59.9 billion (China Times, September 19, 2002). According Peng Huai-nan, Chairman of Central Bank of Taiwan, the accumulated Taiwanese investments to China in the past decade may be around US $104.5 billion (Central News Agency, March 18, 2002). Peng's estimation reconfirms the huge gap existing between official data and business activities across the Taiwan Straits. In other words, the real economic dynamics across the Taiwan Straits come from autonomous actions from the business community. Governmental interventions from Taiwan play only a marginal role in regulating this unique economic relationship.
The following pages will introduce the cases of semi-conductor industries, notebook PC production, and venture capital to demonstrate the gap between top-down incentives and bottom-up dynamics of cross-strait economic relations.
“Hybrid” Taiwanese Firms and Economic Statecraft
The semi-conductor production plays a key role in Taiwan's information technology industry that is closely linked with Taiwan's economic security. The long-delayed decision by the Taiwanese government to allow semi-conductor companies to invest in China was settled on April 2002 with the final decision being a compromise between the two national goals.
The pro-open globalists in Taiwan argue that the mainland initiatives should be regarded as one crucial step in Taiwan's globalization strategy vis-à-vis of IT development. Since the size of the Chinese market and the lower costs of production there enhance China's competitive advantages, the expansion of Taiwanese IT firms to China seems to be a rational choice as far as strengthening Taiwan’s competitiveness goes. There is little question that Chinese firms will learn or even "borrow" Taiwanese technology and know-how in IC production and design. To cope with such challenges from the mainland, Taiwan must upgrade its R & D capacities instead of isolating itself from the global division of labor. Furthermore, since Taiwan does not control the key technologies in the global supply chain, China may obtain know-how from the US, Japan and other advanced nations if it cannot be obtained from Taiwan firms. Once China establishes direct links with key component holders and excludes Taiwan's participation, Taiwan's strategy of globalization will, most assuredly, be put in jeopardy. At the current stage, the entry of the Taiwanese IC industry in the Chinese market will consolidate Taiwan's strategic role in global IC design and manufacturing.
The hard-core conservatives have made national security the first item of priority on the policy-making agenda. They claim that Taiwanese technology and know-how in silicon wafer manufacturing will be lost to China after the "cluster effects" are realized in major Chinese production centers. The "cluster effects" also refers to the moving out of the whole supply chain in the IT industry in general, and the silicon wafer production in particular. The mass movement of foundries to China will also cause serious unemployment problems in Taiwan. Given the fact that Taiwan does not control key technology in the production process, the cluster effect will facilitate the
process for the Chinese to become the leading IC manufacturers in a short period of time. Once China becomes the dominant force in IC design and production, Taiwan's economy will be controlled and dependent on China, and Taiwan's national security will be in great danger. The "magnet attraction" of China will destroy Taiwan's grand strategy of globalization if Taiwan does not adopt balancing acts.
Adopting a principle of "active opening, effective regulation", Taiwan's Cabinet announced four guidelines in governing semi-conductor industries:
(1) Before 2005, Taiwanese firms will be allowed to establish only three silicon wafer foundries on mainland China;
(2) The level of technology is limited to 8-inch wafers or bellow;
(3) Whoever invest in 8-inch wafers in mainland China must launch a new investment project on 12-inch wafers in Taiwan; and
(4) The production of key components and R & D capacities must be kept in Taiwan (China Times, March 9, 2002; United Daily News, April 25, 2002).
The first case under review in the new regulative scheme was the application of TSMC to set up wafer foundries in Shanghai. After 10 months of bureaucratic deliberation, the Taiwanese government finally finished the "first stage" procedure of approval. Subsequent reviewing on other related details such as financial matters may take another six months. In the real world, however, IT producers such as TSMC cannot wait for such as long time for final approval. The Sunjiang township, the targeted location of TSMC's wafer foundry in Shanghai, had already made necessary arrangements for the arrival of TSMC well before the approval of the Taiwan side. Facing the cutting-throat competition in global wafer production, the Taiwanese wafer makers have no
choice but to take early initiatives in the mainland market. The reason of early move is to "deter" domestic and foreign wafers for market shares by occupying a strategic position in China. Taiwanese IT companies have their own estimation and strategies to explore the mainland Chinese market. Waiting for the final approval from the Taiwanese government could only delay their business arrangements of global division of labor.
Furthermore, the new regulatory scheme fails to recognize the reality that Taiwanese wafer makers have transformed themselves into "hybrid" firms in China. In other words, the target of regulation on "Taiwanese firms" has become unclear. Founded in April 2000, Semiconductor Manufacturing International Corporation (SMIC, or Zhongxin), a US$1.46 billion worth of Taiwanese semiconductor company located in Shanghai’s Zhangjiang High-Tech Park, is a good example. Registered as an American company, SMIC is treated by the Chinese government as a leading indicator of domestic IC development. In addition to attracting human resources from leading Taiwanese semiconductor firms, such as Taiwan Semiconductor Manufacturing Corp (TSMC) and United Microelectronics Corp (UMC) with which SMIC has a working relationship, SMIC’s major human resources come from overseas Chinese and returning mainland Chinese students trained abroad. SMIC has attracted at least seventy senior Taiwanese IC engineers from major US IT firms, such as Intel, AT&T, Motorola, Texas Instrument (TI), Hewlett-Packcard (HP) and Micron. SMIC's technical team consists of 2,500 talented IC designers and managers (Leng, 2002c, p. 246).
The SMIC case also demonstrates that even though Taiwan has established strict limitations with regard to talent and technology transformation to China, "hybrid" companies, such as SMIC, still have plenty of
channels in which to grow. The Taiwanese IT firms are also clever in establishing international and local networks. Since SMIC is registered as an American company, many Taiwanese regulations governing cross-Strait investment are not applicable. To cope with the new Taiwanese laws regulating IT talent flows to China, SMIC plans to help Taiwanese engineers obtain passports from the third country (United Daily News, July 24, 2002). In the year 2002, SMIC reached agreements with Toshiba and Chartered Semi-Conductor Manufacturing (CSM) of Singapore to improve its production capacity and introduce advanced technologies. Toshiba will transfer its 8-inch foundry, while CSM will transfer its 0.18 micron technology to SMIC. In exchange, Toshiba and CSM is each expected to hold 5% of SMIC's stock (Commercial Times, September 24, 2002; United Daily News, July 24, 2002). At the current stage, the Taiwanese government only allows 0.25 micron technology to be transferred to China.
The case of the semi-conductor industry demonstrates that the “hybrid” type of IC firms play the role of integrating technology, know-how, and human resources in the global Chinese community. The ultimate goal of these global-oriented firms is to localize the human power and establish webs of state-business relationship in China. Companies like SMIC could not be classified as a pure “Taiwanese”, “Chinese”, or “American” firm. In the long run, strategies of localization will help sustain SMIC’s power base on mainland China while pursuing global goals of networking.
Global Networking and Talent Connections
The Emergence of Trans-Pacific Linkages of Ethnic Chinese Talents
The strength of Taiwanese high-tech production capacities is its connection with global technology centers. The close connection between Taiwan’s high tech center – Hsinchu Science-Based Industrial Park (HSBIP)-- and Silicon Valley in the US enhances the productivity and performance of both places. The key actors enhancing this connection are a transnational community of US-educated Taiwanese engineers who have the language skills and experience to operate smoothly in both regions. Their dense social and professional networks foster two-way flows of technology, capital, know-how, and information between the USA and Taiwan, supporting entrepreneurship in both regions while also providing the foundation for formal interregional business relations such as consortia, joint ventures, and partnerships. This delicate “guanxi capitalism,” as Saxenian and Hsu put it, is difficult to imitate for even the most flexible and decentralized multinational corporations.1 The success of Taiwan in the high-tech sector is characterized by Taiwan’s capacity to integrate leading edge technologies overseas into marketable products. Taiwan’s US-trained human resource is the key to help Taiwan embrace global trends in the high-tech industry.
The success story of HSBIP provides a model for China’s high-tech development. Major Chinese high-tech centers, such as Beijing’s
1
Jinn-Yuh Hsu and AnnaLee Saxenian, “The Limits of Guanxi Capitalism: Transnational Collaboration
Zhongguancun and Shanghai’s Zhangjiang, are initiating new policies to attract international IT talent and returning students. Presently the linkage between China and Silicon Valley is still in the initial stage. However, given the fact that the number of advanced foreign workers and returning students are increasing, a “prototype” of HSBIP style networking connection is emerging. Different from the early HSBIP experience some 20 years ago, the Beijing/Shanghai connection with Silicon Valley involves the Taiwan factor to facilitate the formation of networking. Taiwanese technology elite in Silicon Valley serves as a broker to fabricate this new networking across the Pacific Ocean. The globalized IT industry has expanded the talent flows between Taiwan and China into the international arena.
Regardless of political differences, overseas Taiwanese entrepreneurs are helping to introduce the Silicon Valley model to China. Mutual economic benefit, rather than political interest, motivates this move. Numerous ethnic Chinese technology associations in the Silicon Valley region serve as a bridge to link technology and talent between US and Greater China area.2 The alliance of National Business Information (NBI) and Ningbo City government is a typical case. In 2000, NBI, an association of Chinese-American computer companies of which Taiwanese firms constitute the majority, helped establish a cooperative relationship with industrial-park developers in Ningbo. Member firms of NBI set up software-development base and other joint ventures in
2
For the role of Chinese technology associations in the Silicon Valley region, see Annalee Saxenian,
“Networks of Immigrant Entrepreneurs” in Chong-moon Lee, ibid, pp.248-276; Deng Hai-zhu, Xigu
Ningbo. NBI leaders stress that the strength of NBI is its dense network of people in the three largest growth markets in the world--namely China, Taiwan and Silicon Valley.3
Another case of trans-Pacific technological interaction promoted by ethnic Chinese high-tech associations is the recent activity of Chinese American Semiconductor Professional Association (CASPA). CASPA is one of the largest Chinese American semiconductor professional organizations outside of China and Taiwan. It was founded in 1991 and now has more than one thousand registered members. Most of these members work in Silicon Valley’s major semiconductor companies and are senior professionals. CASPA also has 60 corporate members in the US, Taiwan, China and Singapore.4 In July, 2000, under the sponsorship of PRC Consulate General in San Francisco and hosted by the Shanghai City Government, CASPA made a historic trip to Shanghai. Led by key Taiwanese senior engineers from major IT companies such as Integrated Circuit Technology (ICT), Aurora System, Nippon Electric Company (NEC), Latttice Semiconductor and Clarent, CASPA introduced Silicon Valley’s technology know-how (such as integrated circuit design and high-density television) and management knowledge (such as marketing and VC) to the Chinese audience in Shanghai. Managers, engineers, and governmental officials from Shanghai and adjacent cities approached the CASPA group to seek for professional advice and business opportunities. After the Shanghai trip, CASPA went to Taiwan and rendered advice about
3
The Nikkei Weekly (November 27, 2000).
4
cross-Straits IT cooperation. CASPA suggested that the best policy for Taiwan to enter the China market at the current stage is to create strategic alliances with major international semiconductor producers. Members of CASPA indicated that equipped with capital and production capacities, Taiwan could play the role as a mediator to introduce international talent to China and integrate human resources of the Greater China region with global high-tech centers.5
The above cases demonstrate that political tension is no longer a key factor impeding cooperation among ethnic Chinese talent. Although key members of NBI and CASPA are senior Taiwanese engineers, their long-term visions have been expanded from Taiwan-Silicon Valley connection to trans-Pacific interaction with Greater China region. Market benefits play the major role, and the advanced manpower of the Chinese high-tech network facilitates the emergence of the ethnic Chinese technology circle. However, the relationship of governmental-affiliated technology associations from two sides of Taiwan Straits in Silicon Valley may be of both competition and cooperation. Hua-Yuan Science and Technology Association, supported by the PRC government, was established in Silicon Valley in 2001. Hua-Yuan’s goal is to promote the model of “designed in Silicon Valley, manufactured in China” of high-tech development. The emergence of Hua Yuan aroused the attention of Monte Jade Science and Technology Association, a Taiwanese government-supported association established in 1990. In recent years one of
5
Interview with Dr. Yun-Parn Lee of International Division, CASPA, on May 7, 2001, Santa Clara. Dr. Lee,
Monte Jade’s major goals has become to develop the Chinese market by introducing US technologies and Taiwanese capital. However, Monte Jade’s previous plan to establish chapters in China was blocked by Beijing.6 Many Taiwanese venture capitalists and start-up firms in Silicon Valley are trying to develop connections with both Hua-Yuan and Monte Jade. Future interaction between these two associations may include developing alliances to integrate ethnic Chinese talent, or competing for the dominant role to attract Chinese brain power and capital in Silicon Valley.
Venture Capital as the Catalyst of Deep Talent and Economic Integration In building the Taiwan—China—US talent network, venture capitalists serve as a dynamic vehicle to smooth the process of invisible integration. In the United Sates, start-up firms run by ethnic Chinese normally have difficulties getting funds from US VC companies. One crucial source for these ethnic Chinese start-ups to get funding, regardless of whether the firms are run by Chinese graduates or Taiwanese graduates, is active Taiwanese VC. It is reported that investment in the US by Taiwanese VC firms grew from US $130 million in 1998 to US $400 million in 1999, most of which is estimated to have gone to ethnic Chinese-owned businesses in Silicon Valley. 7 These Taiwanese venture capitalists are normally regarded as “deal makers,” connecting Taiwanese and US IT industries. While investing on design-oriented start-ups in the Silicon Valley, Taiwanese venture capitalists
6
Jingji Ribao (May 24, 2001)
7
also introduce these design houses to Taiwanese IT production companies, and thus establish a design—production networking across the Pacific Ocean. Taiwan’s high-quality production capacities and innovative spirit in Silicon Valley is connected and smoothed by the venture capitalists.
In addition, more Taiwanese capitalists are also becoming “king makers” in the Silicon Valley. These venture capitalists establish incubators in Silicon Valley as one key base for investing on high-tech start-ups. Normally founders of Taiwanese incubators themselves are successful entrepreneurs and have practical experience in establishing high-tech firms in the US. Taiwanese-run incubators also become a center for fostering young ethnic Chinese entrepreneurs in Silicon Valley. Acorn campus, established by Chen Wu-fu and four other Taiwanese engineer-turn-entrepreneurs, is a successful case of a business incubator in Silicon Valley. Acorn has plans to introduce the Acorn model and establish start-up incubators in Shanghai in the near future. Chen himself plans to lead a new team in Shanghai. As Chen indicated, Acorn’s focus is on China’s advanced talent, rather than China’s market.8
The case of Acorn Campus provides a potential model of trilateral talent cooperation between Taiwan, China, and the US. A cross-border iron triangle of Taiwanese capital, Silicon-Valley-style innovative spirit, and ethnic Chinese advanced work forces is emerging. Within this iron triangle, ethnic Chinese talent is the core. The US provides ideal ground for innovative training for Chinese talent from both sides of the Taiwan Straits. The US experiences
8
Zhuang Su-Yu, “Cover Story: Silicon Valley’s God of Chinese Venture Capitalist Chen Wu-Fu,” Global
enhance their understanding of cutting-edge technologies and, more important, the confidence to start up their own businesses back on domestic soil.9 These US-trained advanced work forces therefore become a catalyst for manpower integration across the Taiwan Straits. Instead of bilateral interaction, this integrative mechanism is global-oriented.
In order to strengthen this iron triangle, Taiwanese VC adds fuel to boost development. Taiwanese professional managers become a crucial pillar to develop the Chinese market for international VC firms. The common practice of these firms is to register as an American or Hong Kong VC company, and attract capital from the greater China region and international sources. Take WI Harper (Zhong Jing He) for example. Registered as an American VC company, WI Harper wishes to attract 19 to 30 million US dollars fund from Taiwan to invest in the biotech industries. WI Harper plans to invest 20 percent of its new funds in Taiwan, 30 percent in China, and 50 percent in the US.10 Beginning in 1996, WI Harper and Silicon Valley entrepreneurs have invested in a state-supported telecommunication company Navini Networks to develop 3G technologies on China. WI Harper also created “Beijing Technology
9
Interview with Nan-lei Larry Wang, Senior Vice President, Engineering, EIC Corp, Fremont, USA, May 8,
2001.
10
Gong Shang Shi Bao (February 14, 2001). For a detailed discussion of WI Harper’s investment projects,
please refer to Thomas Hellman, Sandro Cornella, Rengan Rajaratnam, William Shen, Suzanne Usiskin
and Mary Yang, WI Harper International: A Bridge between Silicon Valley and Asia (Stanford: Stanford
Development Fund (BTDF),” the first state-supported overseas VC, with Tsinghua University and Beijing City Government to invest start-up high-tech companies in Northern China. Further plans include the establishment of start-up incubators with China’s major universities. In 2001, WI Harper and the Suzhou and Shenzhen city governments collectively invested 60 million US dollars on 3G wireless and TFT-LCD industries on China.11
The common characteristic of Taiwanese VC companies is the globalization of funding and management. In many cases, capital from mainland Chinese sources constitutes half of the total capital. In their global operation scheme, one criterion for selecting Taiwanese start-up investment projects is their potential to expand and prosper on China. At the same time, these Taiwanese VC firms have established branches in major Chinese cities and trained first-generation VC managers on China. Furthermore, American Venture Capitalists become a bridge to link Taiwanese and Chinese companies. Warburg Pincus, an American VC company, has established strategic alliances with Taiwanese venture capitalists to develop the Chinese market. One crucial goal of Warburg Pincus is to help promote the cooperative mechanisms between high-tech firms across the Taiwan Straits.12
New investment initiatives of Taiwan’s VC open a door for deeper integration across the Taiwan Straits. Different from the manufacturing investment in the early stage of cross-Straits economic interaction, the real target of this wave of VC investment is focused on the new generation of
11
Ctech Channels (February 22, 2001).
12
advanced talent on both sides of the Taiwan Straits. Taiwanese venture capitalists are investing in emerging Chinese entrepreneurship, rather than the cheap labor forces and land available on China. In 1999, VC contributed only 2 percent of the capital of Chinese start-up firms. The low marketability of Chinese patents is an indication of the distance between research and entrepreneurial activities 13 In other words, a large gap exists between basic research capacities and marketable technology, and between start-up spirits and funding possibility. Equipped with capital and professional management skills, Taiwanese venture capitalists foresee the great potential to spread the seeds of entrepreneurship on the domestic soil of Chinese culture.
Taiwanese VC investment could also closely link with China’s drives for globalization and capital market reform. At the initial stage, China’s VC companies are organized by the local governments. These local VC companies lack professional personnel and marketing capacities. Recently China has begun to acknowledge the importance of attracting foreign VC to link Chinese start-up companies with international talent, sales routes, and capital markets.14 State-backed VC firms are reconstructed like those in the west in order to face the market. Shanghai Venture Capital Corp (SVC), a Shanghai city-owned VC firm, enjoys more autonomy to operate according to market mechanisms. SVC is also establishing strategic links with other
13
Lin Wanrong, “Taiwanese Venture Capital on China,” Global Views Monthly, (November 11), 2000, p.
194.
14
Li Kun, “Fengxian touzi ye xuyao liyong waiz (Venture Capital Also Needs Foreign Investment),”
Chinese VC firms, such as Shanghai New Margin Venture Capital controlled by Jiang Zemin’s son Jiang Mianheng. In order to introduce international management experiences, SVC and Singaporean government-supported Venture TDF Co. jointly established a US $50 million fund. In an attempt to tap a global network of contacts, the Shanghai government eventually agreed to let the Singaporeans control the fund.15 If the trend of globalizing VC management continues, Taiwanese VC firms have plenty of opportunities to be the leader in cutting-edge professionalism. The complex networking with local and international technology centers provide Taiwan a unique advantage to compete with other Asian nations in the VC market on China. Furthermore, allying with China’s state-backed VC companies created a favorable condition to integrate with China’s domestic networking operating.
The Loophole of Regulation? Venture Capital and Global Networking
Another emerging driver to boost cross-Straits economic relations is the active venture capitalists and their companies. This case also demonstrates that the global operation of VC is out of the reach of the Taiwanese state. In the past decade, Taiwanese VC has added fuel and helped create global networks for mainland Chinese and Taiwanese firms. Taiwanese professional managers have become fundamental pillars in the development of the Chinese market for international VC firms. The common practice of these firms is to register as an American or Hong Kong VC company and attract capital from
15
the Greater China region and international sources. For instance, the Taiwan-based H & Q Asia Pacific is among the first foreign VC pioneers in China. With a total US$ 1.6 billion fund, H & Q Asia Pacific has invested more than $US 200 million in China. Major targets of investment include the two largest Taiwanese semiconductor manufacturers in Shanghai--Zhang Rujing's SMIC and Winston Wong's Grace Semiconductor Manufacturing Corp (GSMC). In the past ten years, H & Q has introduced American VC experiences as well as sophisticated, well-trained and gifted experts from Taiwan to mainland China. Not only capital but also human resources are undeniably the two necessary pillars of the scaffolding in the building of global networks of IT production.
The common characteristic of Taiwanese VC companies is in the globalization of their funding and management. In many cases, capital from mainland Chinese sources constitutes half of the total. In the global visions of such VC firms, one criterion for selecting Taiwanese start-up investment projects is their potential to expand and prosper in China. At the same time, these Taiwanese VC firms have established branches in major Chinese cities and trained first-generation VC managers there. American venture capitalists are becoming bridges to link Taiwanese and Chinese companies. Warburg Pincus, an American VC company, has established strategic alliances with Taiwanese venture capitalists to develop the Chinese market. One crucial goal of Warburg Pincus is to help to promote the cooperation among high-tech firms across the Taiwan Strait.
Taiwanese VC investment could closely link up with China’s drives for globalization and capital-market reform. In the initial stage, China’s VC companies were organized by local governments, but these companies, for the
most part, lacked professional personnel and marketing capacity. Recently China has begun to acknowledge the importance of attracting foreign VC to link Chinese start-up companies with international talent, sales routes, and capital markets (People’s Daily, December 30, 2000), and as a consequence, state-backed VC firms are being restructured like those in the West in order to compete in the market. For one, Shanghai Venture Capital Corporation (SVCC), a Shanghai city-owned VC firm, enjoys considerable autonomy in operating in accordance with market mechanisms, and SVCC has begun establishing strategic links with other Chinese VC firms, such as Shanghai New Margin Venture Capital (SNMVC), controlled by Chinese President Jiang Zemin’s son, Jiang Mianheng. The complex networking with local and international technology centers gives Taiwan a unique advantage to compete with other Asian nations in the VC market in China (Leng, 2002a, p. 243) .
Taiwanese VC companies also play an important role of helping to enhance state-business relationships across the Taiwan Straits. In the case of GSMC, the alliance between Winston Wong, son of the Taiwanese tycoon Wang Yung-ching, and Jiang Mianheng demonstrates the foundation of GSMC's political networks in China. GSMC has, in the meantime, also succeeded in attracting supports from Crimson Asian Capital and Crimson Velocity, both of which belong to the Crimson Fund. Founder of Crimson Fund Gu Zhongliang is the son of Gu Liansong, head of Taiwan's prestigious China Trust Group. In addition to introducing global networks of manufacturing and management, Taiwanese VCs help strengthen local networks of relationships. In the era of globalization, this "localization" of networks is still the key of success in China.
instruments to regulate or even punish "illegal" Taiwanese VC activities on China. The only substantial instrument is to prohibit governmental development funds from investing on mainland China-oriented VCs. In late 2002 and early 2003, the Taiwanese government forced two Taiwanese VC with governmental funds shares to withdraw new projects from GSMC and SMIC in Shanghai. For those who attract funds from international sources, the state can only use indirect ways or resort to moral principles to persuade them. Just like the case of semi-conductor and notebook PC companies, the major problem of Taiwan's regulatory scheme is the difficulty in defining the target. In addition to their capacities in attracting global funds, Taiwanese venture capitalists endeavor to localize their operation and establish complex state-business networking in China. The real ‘target’ for regulation should be the momentum and long-term ambition of these venture capitalists in utilizing the mainland Chinese market as the power house of global operation. Such activities combining strategies of globalization and localization are not constrained by the governmental intervention, especially regulations from the investors’ home country. Actions by the Taiwanese state to punish illegal venture capital activities only serve as a symbol to demonstrate the willingness of the government to balance national security and economic benefits.
