Taiwan is finally luring companies back from China after more than 15 years of trying
- Higher costs and dodging trade tariffs from the US-China trade war are key reasons for Taiwanese firms moving back home
- Since January, 14 firms have applied to invest (US$1.29 billion) which would create 4,400 jobs, with 14 projects pending approval
Taiwan is slowly gaining after 15 years of effort to attract local companies to invest at home rather than in mainland China, which has so long been the favoured investment location.
In 2008, then president Chen Shui-bian offered amnesty to firms that had broken laws against investing in the mainland, before successor Ma Ying-jeou leased land and established tech incubators to incentivise the return of capital. Now, a list of government incentives under President Tsai Ing-wen that took effect January 1 is combining with a growing list of business headaches in mainland China to lure that capital back to be invested in Taiwan.
Since January, Taiwanese investors have applied with the Taipei government to invest NT$39.9 billion (US$1.29 billion), the island’s economic affairs ministry said on March 15. The investment by 14 firms would create 4,400 jobs, the ministry’s Investment Commission said, while another 14 projects are pending approval.
Preferential financing, permission to hire low-cost workers from Southeast Asia and the prospect of letting mainland Chinese employees work in Taiwan have all been offered by the commission to returning investors. Some projects also qualify for rent breaks on government-owned land, which is normally hard to find for large-scale investments.
It lacks comparative homebound investment figures for previous years, but sees the latest batch as “not too bad,” said Wang Tzu-yi, an associate with the commission’s comprehensive planning unit.
“Given the risks these companies face, and in light of recent, new incentives offered by the government in Taiwan, there is a possibility of firms moving production back to Taiwan, or even to other more feasible locations, including the US,” said Anushka Shah, a senior vice-president for the Analyst Sovereign Risk Group at Moody’s Investors Service in Singapore. “A lot will depend on the policy incentives offered by Taiwan, to create an enabling environment for these firms.”
The first wave of investors switched to mainland China in the 1980s due to rising labour and land prices in Taiwan, with about 101,000 Taiwanese entrepreneurs eventually investing US$140 billion in projects by 2014, according to Taiwan government data.
Incentives aside, economists and companies themselves point to problems with conducting business in mainland China as the main reason Taiwanese entrepreneurs are considering investing at home.
Wages in mainland China are increasing and have even doubled in some areas between 2010 and 2017, while compliance with Chinese environmental rules is becoming more expensive, said Darson Chiu, deputy macroeconomic forecasting director with the Taipei-based Taiwan Institute of Economic Research.
Given the risks these companies face, and in light of recent, new incentives offered by the government in Taiwan, there is a possibility of firms moving production back to Taiwan, or even to other more feasible locations, including the US.
“They’d had hopes initially for the so-called dividend from selling to the [mainland] population, and this was especially [true] for mass production, but that can’t carry them now,” he said.
The continuing US-China trade war is also pushing Taiwanese technology hardware assembly work to Taiwan from the mainland, Chiu added. The United States placed tariffs on US$250 billion worth of Chinese goods, making it more expensive for Taiwanese investors in mainland China to export their good to the all-important American market.
Quanta Computer and bicycle producer Giant Manufacturing are among the 28 applicants who have applied for reinvestment in Taiwan over the past three months.
Giant has moved bicycle and e-bike production from the Shanghai area back to its central Taiwan plant since the final quarter of 2018, investing an unspecified amount in personnel and equipment as the shift unfolds, according to company publicist Irene Chen.
US tariffs on goods shipped from mainland China and anti-dumping duties the European Union has placed on bikes manufactured in China are driving the shift, Chen added.
Giant also received the ministry’s permission in March to invest NT$5 billion (US$162 million) in new Taiwan operations.
But some Taiwanese technology firms, such as iPhone assembler Foxconn, and major machinery producers are likely to maintain their investment in mainland China, analysts said, because they can ship directly to Chinese consumers and would find Taiwan’s labour too expensive for large-scale production.
“Taiwan has a large, skilled workforce and relatively low wages,” said Chang Liu, China economist with Capital Economics in London. “But it is worth noting that the more labour-intensive operations of Taiwanese firms in China cannot be moved from China to Taiwan.”
Taiwan has a large, skilled workforce and relatively low wages. But it is worth noting that the more labour-intensive operations of Taiwanese firms in China cannot be moved from China to Taiwan.
The members of the Taiwan Association of Machinery Industry with mainland China operations will probably make no change in their investments because they sell primarily to industrial customers in mainland China, association president CC Wang said.
“Most who are [manufacturing] in the mainland China market sell in the mainland China market,” he said. “They can cut their tariff burden. The concept is different than if you sell to end users.”
To attract machinery makers, Taiwanese officials would need to do more to prepare land and utilities to give the island appeal, Wang added.
