Investors shipping out of Taiwan

A chronic lack of investment in Taiwan due to its relatively high business costs and an unsteady world demand for local exports is gnawing at the island's economic growth forecasts for this year despite the government's stimulus measures.

Shaky global demand for signature Taiwanese exports such as electronics and machinery has dulled enthusiasm for investment, particularly as growth slows in the island's top market, the mainland. Prices of land and labour combined with a relatively small consumer base have further detracted from Taiwan's potential, sending investors to other parts of Asia.

Quantifying a trend mainly among Taiwanese investors, the island's central bank reported a net outflow of US$9.5 billion in the first quarter of the year and 11 consecutive quarters of outflow, the longest stretch ever.

"Investment has been low in the last few terms, so there's an impact on the GDP, though it's limited," said Shih Hsiao-chi, an economist with SinoPac Securities in Taipei. "The government is working hard, but those matters are structural so [measures] require some time to take effect."

The government of the 26th largest economy also lowered its full-year growth forecast in August from 2.4 per cent to 2.31 per cent. A private think tank, the Taiwan Institute of Economic Research, in July revised its 2013 prediction from 3.71 per cent to 2.52 per cent.

"Accelerating outbound corporate investments", especially to mainland China and Southeast Asia, have hobbled capital investment and thereby hurt domestic consumption, Taiwan's Central News Agency says.

The effect of investment drain on Taiwan's GDP, however slight, would raise deeper fears about the island's long-term competitiveness and questions about government efforts to reclaim investment from offshore while fostering new business.