China-US tensions force Taiwanese tech firms to consider a ‘plan B’ – India or Vietnam
- Taiwanese firms are moving an ever larger share of their capital to cheap, well-connected places, including Vietnam and once-unthought-of India
- Many are retaining basic exposure to mainland China, while shipping hi-tech components to the US from friendly countries to keep costs down
A flurry of technology deals signed last month between Taiwanese and American companies have been touted as a sign of “deepening partnership” between the economies, but the island’s multinationals are increasingly eyeing production bases free of friction between the US and China.
The agreements come at a time of historically high tensions between mainland China on one side and the United States and Taiwan on the other. Caught in the middle are some of Taiwan’s biggest firms, especially manufacturers of the fiendishly complex semiconductors at the heart of the modern economy.
Both powers are keen to curry favour with Taiwan’s tech titans, but strained relations between Beijing and Washington, cross-Strait tensions and America’s high manufacturing costs are pushing Tawainese companies in new directions.
Many are retaining basic exposure to mainland China – a juicy source of sales revenue during non-pandemic times – while shipping hi-tech components to the US from American-friendly countries to avoid the costs of doing business in the US itself.
Data and expert opinions show that these multinationals, the staple of Taiwan’s US$759 billion economy, are taking an ever larger share of their capital to cheap, well-connected places, including Vietnam and once-unthought-of India.
“For some years it seems that it’s no longer so attractive for Taiwanese companies to plan on putting their money, technologies and managerial expertise into [China], and now it looks like India has become their ‘plan B’,” said John Eastwood, a partner with Eiger law firm in Taipei.
The US government has lobbied Taiwanese tech companies to invest more in the country following a global chip shortage triggered by the coronavirus pandemic.
Agreements like those signed earlier last month showed a “deepening partnership” between Taiwan and its No 2 trading partner, the US, said the island’s economic affairs minister Wang Mei-hua, who attended the signings in Washington.
Taiwanese and US companies reached seven memorandums of understanding during the minister’s visit.
Of those, five cover cooperation in 5G technology. Intel and Taiwan-based Quanta Cloud Technology will start a project called 5GxAI Open Lab, for example, while Taiwanese smartphone developer HTC agreed with American telecoms firm Lumen Technologies to co-develop virtual and augmented reality technology.
In another deal, US firm DuPont Microcircuit and Component Materials and Taiwanese base station service provider TMYTEK said they would work together on low-orbit satellites. DuPont will provide ceramic antenna material, Taiwan’s economic affairs ministry said.
The US has been courting Taiwan, the top global supplier of chips that run everything from state-of-the-art washing machines to high-performance computers, as they double down on efforts to contain China’s technological development.
Washington has imposed a series of restrictions barring American technology from being exported to China and is offering billions of dollars in incentives for semiconductor manufacturers to expand production in the US.
Companies worldwide were also barred from selling supercomputing and artificial intelligence chips to China made with US software, machinery or technology.
Taiwanese firms received approval to invest US$932.7 million in the US over the first eight months of this year, according to the Investment Commission in Taipei, up from US$361.2 million over the same period in 2021 but lower than US$2 billion in 2018 and US$4 billion in 2020.
In comparison, approved investments in mainland China reached about US$18.9 million in the first eight months of 2022, down from US$29.5 million over the same period a year ago and US$70.2 million approved in December 2021.
Taiwanese manufacturers have invested in mainland China since the 1980s and some 4,200 firms operate there today.
But a growing number of Taiwanese firms are looking for alternatives due to geopolitical tensions.
Relations between Taiwan and the mainland plummeted to their lowest point in decades in August after US House Speaker Nancy Pelosi visited the island, a move Beijing viewed as an endorsement of the pro-independence agenda of the ruling Democratic Progressive Party.
Beijing regards Taiwan as a breakaway province that must be reunited with the mainland, by force if necessary.
Trade tensions between Beijing and Washington are also a challenge for Taiwanese firms in the mainland. The trade war, launched by former president Donald Trump in 2018, has placed tariffs on US$550 billion worth of goods shipped from China, undermining the competitiveness of exports from the world’s No 2 economy.
China has lost more appeal since it began imposing draconian coronavirus controls, snarling logistics, in early 2020.
“Many are moving some of their operations away from China, while a smaller percentage are actually moving out of Taiwan to, among other places, mainland China,” Scott Kennedy, trustee chair in Chinese business and economics with US think tank the Centre for Strategic & International Studies, said in a report last month.
Taiwanese firms are “eager” to run factories in India as its supply chains improve, Estela Chen, a New Delhi-based Taiwanese official, was quoted as saying by India’s Knowledge and News Network in September.
Taiwanese companies and Indian start-ups have started working together on chips and aerospace projects, Chen said.
India is known for low costs and a large domestic market, though language barriers and sometimes clashing business cultures remain challenges.
Companies from Taiwan have been approved to invest a total US$1.11 billion in India since 1952, with about US$920 million of that since 2018, Investment Commission data showed.
Foxconn, the world’s biggest contract assembler of electronic goods, told the Taiwan stock exchange in September it would partner with Indian conglomerate Vedanta to establish a semiconductor factory in Gujarat worth US$118.7 million.
The locations and investments for other plants in India are still being discussed, a spokesman for the company said earlier this month.
Vietnam, a manufacturing hub seen as a reliable and cheaper alternative to China, is also gaining interest from Taiwanese manufacturers.
Some US$341.6 million was ploughed into the Southeast Asian country in 2021, the most since 2017, Taiwanese government data showed.
“In Taiwan’s private sector, there have been growing needs for supply chain diversification after the US-China trade war and the Covid pandemic,” said Ma Tieying, an economist with DBS Bank in Singapore.
“But companies may also prefer to move back to Taiwan or to Vietnam, India and other Asian countries. Labour costs in the US are far higher than in Asia, a key factor constraining the incentives for Taiwanese companies to move to the US.”
Taiwanese firms still manufacture some products at home to protect trade secrets. TSMC is “trying to strike a balance”, Ma said, by investing in the US while upgrading its domestic technology.
Joining the US government’s so-called Chip 4 alliance of Asian semiconductor makers would help Taiwan secure upstream American technology, but lead to “greater pressure” to invest in the US, Ma said. It would also lead to restrictions on them accessing the Chinese market.
The proposed grouping also includes Japan and South Korea.
While Taiwanese multinationals scan the world for new production bases, foreign investment into the island from global tech giants continues to grow.
Taipei’s Investment Commission approved US$10.4 billion in foreign investment from January to August this year, up from US$3.7 billion in the first months of 2021 and US$9.1 billion for all of 2020.
American tech firms such as Google, Microsoft and memory chip maker Micron Technology have grown their Taiwan operations, especially in research and development, over the past 25 years because of relatively inexpensive talent and land prices.
Neither American nor Taiwanese businesspeople are picking locations based on the risk of a Taiwan-mainland China military conflict, experts said.
“[Foreign direct investment] decisions are made over months and years, not weeks and months,” said Rupert Hammond-Chambers, president of the US-Taiwan Business Council.
American businesses in Taiwan seem “fairly confident” that the mainland’s “threats” are for domestic audiences and not signs of an imminent invasion, Eastwood said.