Taiwanese investing more in South Asia, Asean than mainland China amid global supply chains reshuffle
- Taiwanese investments in mainland China came to US$1.9 billion in the first six months of the year
- But inflows into South Asia and the Asean bloc, plus Australia and New Zealand, reached a combined US$2.126 billion over the same period
Investments from Taiwan in South Asia and the Asean bloc surpassed the capital parked in mainland China in the first half of 2023, Taipei said, amid continued cross-strait tensions and economic woes that have weighed down the Chinese business landscape.
Taiwan’s investments in Bangladesh, Bhutan, India, Pakistan, Sri Lanka and the 10 Association of Southeast Asian Nations (Asean) countries – plus Australia and New Zealand – reached a combined US$2.126 billion in the first six months of the year, deputy economic affairs minister Chen Chern-chyi told a forum on Tuesday.
Capital from Taiwan, the world’s 21st largest economy, that reached mainland China came to US$1.9 billion over the same period, the deputy minister added.
“Under the reorganisation of global supply chains, Southeast Asian nations and India have become an important destination for all countries,” Chen told the Taiwan-Asean-India Strategic Investment Partnership Forum in Taipei.
[Taiwan advocates a] strengthening of economic relations with Southeast Asia to reduce reliance on a single market
Taiwan advocates a “strengthening of economic relations with Southeast Asia to reduce reliance on a single market”, he added.
Investors had largely preferred mainland China over the past 40 years because of its proximity to the self-ruled island, a common language and relatively inexpensive labour.
Since 1991, ministry data showed Taiwanese invested US$205.2 billion in mainland China.
But years of rising costs, recent property market losses and an uneven post-Covid economic recovery in the world’s second-largest economy have seen business conditions deteriorate.
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Disruptions to production and logistics in mainland China during the coronavirus pandemic prompted a search for more geographic diversification of assets, while festering US-China tensions have prompted some investors to shift toward Western-aligned supply chains.
Tensions across the Taiwan Strait in recent years have also raised additional concerns over risks of supply chain disruptions.
Since 2016, Taiwan has pushed its New Southbound Policy, which aims to expand channels for investment, trade, tourism and education with South Asia, Southeast Asia and Australia to cut reliance on mainland China.
Countries covered by the policy include the 18 that drew more Taiwanese investment than mainland China in the first half of the year.
You can tell from China’s numbers that things aren’t going well
India and parts of Southeast Asia offer cheaper land, abundant workforces and policies allowing more foreign investment, analysts said.
“Taiwan is in a way reluctant, but coming to terms with huge geopolitical issues,” said Alicia Garcia-Herrero, the chief Asia-Pacific economist at Natixis in Hong Kong.
“You can tell from China’s numbers that things aren’t going well.”
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A decline in consumption would make mainland China less attractive for investors who sell factory goods to the domestic market of 1.4 billion people, said Chen Yi-fan, an assistant professor of diplomacy and international relations at Tamkang University near Taipei.
Fear of a dangerous downturn in cross-strait relations would also push investors to prefer other destinations, the professor added.
“But the biggest problem still is the decoupling issue between the US and China, and the investors are moving their factories to Southeast Asia to avoid it,” he said.
In Southeast Asia, Vietnam was the forerunner in the first six months of the year with US$352.4 million invested from Taiwan, up from US$143.4 million in the first half of 2022.
Taiwanese are now expanding and they have a big community here, which is important
Electronics giant Foxconn, which is based in suburban Taipei and has set up factories in mainland China, operates a Vietnam assembly line along with thousands of other Taiwanese factories that make garments, furniture and machinery.
“It’s been a big attraction for Taiwanese investors over the past decade,” said Adam McCarty, chief economist with Mekong Economics in Hanoi.
Instead of clustering around a few major manufacturers as they have done in the past “Taiwanese are now expanding and they have a big community here, which is important”, he added.
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Taiwanese investment in Indonesia, a bounty of minerals as well as factory sites, jumped to US$143.7 million in the first half of 2023, up from US$118.7 million over the same period in 2022.
Foreign factory operators now favour Indonesia because of its recently amended Omnibus Law of Job Creation, said Nukila Evanty, a Jakarta-based member of the Asia Centre research institute’s advisory board.
The law, which was first enacted in 2020, simplifies regulations and licencing procedures, a reflection of Jakarta’s push to create jobs by attracting offshore investment.
Many foreign-owned factories process Indonesian natural resources, such as fish and rubber, into new products, Evanty added.
