89 MARTINDALE CENTER FOR THE STUDY OF PRIVATE ENTERPRISE Restraints on global integration Taiwan maintains formal diplomatic relations with only 12 counties, as Chinese pressure forced 10 countries to cut ties between 2016 and 2024 (Curtis & Walker, 2024). Taiwan’s heavy reliance on China also weakened relations with other countries, except the US. Taiwan remains a critical partner to US economic interests through the semiconductor supply agreements, given their critical role in US smartphones, computers, motor vehicles, Internet of Things, 5G technologies, and medical equipment (Reinsch & Whitney, 2025). This isolation is a major impediment for local firms looking for funding and expertise. The dependency it creates is concerning as mainland China produces over 80% of Taiwan’s information and communication technology–related products (Feigenbaum, 2020). China is also facing volatility in its markets, exacerbating the risk. The entire Greater China faces reduced PE and VC funding due to high interest rates, limited pathways for investors to exit, and rising geopolitical tensions (Li, 2024). Global wariness toward Chinese assets extends to considering Taiwanese investments. On a more positive note, as mergers and acquisitions become more active in China’s capital markets, they may attract value investment thanks to innovation in energy, advanced manufacturing, and AI technologies (Wu, 2025). However, the outlook is still grim considering that anti-China sentiment in Taiwan has already caused PE deals to fall through (US–Taiwan Business Council, 2020). According to the Chung-Hua Institution for Economic Research, although R&D spending represented ~3% of Taiwan’s GDP in 2015, only 0.06% of private-sector R&D came from foreign sources (Feigenbaum, 2020), revealing the insufficiency of foreign investment in supporting Taiwan’s private sector R&D initiatives. Consequently, the start-up ecosystem of Taiwan’s export-oriented economy is heavily reliant on its small domestic markets (Taiwan consumer spending, n.d.). A PwC survey (2018) indicated that 71% of Taiwanese start-ups’ revenue comes from the domestic market. Yet, Taiwan’s domestic market is scarcely 1% of the global economy, severely limiting growth potential. Despite attempts at international expansion, Taiwanese start-ups remain dependent on China (50%), the US (19%), Japan (9.5%), and Singapore (7.1%) for their target markets (Leading target overseas…, 2025). This focus is primarily due to start-ups gravitating to mass domestic markets that, unlike Taiwan, focus on consumption products (Feigenbaum, 2020). With rising bilateral tensions and China pursuing semiconductor self-sufficiency through the Made in China 2025 10-year plan (Kennedy, 2015), Taiwan is not fully leveraging other international markets to diversify beyond its semiconductor concentration risk. Taiwan lacks transparent investment data, according to Hsiu-ying Lin (2019) of the Taiwan Institute of Economic Research, who pointed out insufficient disclosure of deals, deal sizes, valuations, and exit performance across the various growth stages. Even though the TVCA tracked some start-up activity, the full scope of reporting for early investors about past valuations and deal dynamics in the last two years remains limited, which led the Institute to create FINDIT, a government-backed data platform for start-up information (Overseas Community Affairs Council, R.O.C. [Taiwan], 2025). The ramifications of this opacity are increased skepticism and hesitation from international investors looking for proven performance track records before entering new markets. At the same time, Taiwan imposes complex regulatory barriers on foreigners planting stakes in start-ups. These strict regulations and bureaucratic structures limit interested parties from engaging. Foremost, all offshore funds must obtain foreign investment approval through the Department of Investment Review (DIR) (Hsieh & Chen, 2024). However, the delays caused by the DIR drive many start-ups seeking foreign PE capital to register in the Cayman Islands or other offshore jurisdictions (Shu, 2024). The DIR usually takes one to two months for foreign investments and two to four months for PRC investments, but the DIR’s sole discretion for further information and ad hoc reviews can prolong that process (Li et al., 2025). The government also prohibits or restricts foreign financing through the Negative List for Investment by Overseas Chinese and Foreign Nationals, citing security and environmental protection concerns (Laws and Regulations Retrieving System, 2018). Foreign ownership exclusions include public utilities, power distribution, natural gas, postal service, telecommunications, mass media, and air and sea transportation (U.S. Department of State, 2024). Although security concerns regarding China are understandable, the broad restrictions deter all foreign investors, including those from Europe, the US, and Japan, limiting crucial funding options. Potential solutions to the ailments of Taiwanese VC Taiwan has the potential to reduce its reliance on the Chinese economy, diversify beyond semiconductors, and foster an innovative domestic start-up culture attractive to foreign interests. This transformation
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