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This Week in Asia Politics

As US-China tensions heat up, Taiwan’s firms pivot to India

India’s giant market, inexpensive skilled workforce and generous tax breaks aren’t the only things drawing investment from Taiwanese firms
Fears over the fallout from US-China tensions and a desire to diversify supply chains in the wake of Covid-19 are also fuelling the trend

Taiwan

Ralph Jennings

Published: 11:00am, 29 Jul 2020

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Taiwanese firms seeking to reduce their reliance on mainland China amid the fallout from the coronavirus and the US-China trade war are pivoting to India, drawn by its giant market, inexpensive skilled workforce and generous tax breaks.

The Taiwanese company Pegatron, an assembly partner for the US tech giant Apple, raised eyebrows this month with the news that it was applying for permits to set up its first plant in India. The firm, which reported revenue of US$44.8 billion in 2019, normally offshores its orders to its factories in mainland China.

But analysts and the Taiwanese government say the firm’s swing into India is only the latest example of a trend that has been gaining pace over the past four years as ties between New Delhi and Taipei strengthen.

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While perceptions of tangled bureaucracy and high taxes have in the past put off many overseas firms from investing in India, a charm offensive by the Narendra Modi government that has included slashing corporate tax rates has added to India’s appeal just as many companies look to diversify supply chains in the wake of the coronavirus pandemic and amid increasing signs of US-China decoupling.

Companies in Taiwan, the world’s 22nd largest economy, have historically picked mainland China for offshoring production of electronics and machinery but despite the mainland’s proximity, common language and shared culture, costs are rising and the US-China trade war that broke out in 2018 raised tariffs on goods shipped out of China to the United States.

Indian Prime Minister Narendra Modi. Photo: EPA

“Because of global impacts from the US-China trade war and the novel coronavirus outbreak, diffusion of risk and allocations is an irreversible trend,” the island government’s InvesTaiwan office told This Week in Asia. “Taiwan investors considering India see a huge domestic market and ample labour.”

According to the business consultancy Dezan Shira & Associates in New Delhi, investments by Taiwanese firms in India had reached US$360.5 million by the end of 2018.

A spokesperson for Pegatron cited the potential of India’s market, its labour force and “the efficiency of our business operations” as being behind its move.

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A GROWING TREND

About 140 Taiwanese companies are now operating in India, mostly in manufacturing, according to Dezan Shira, which says there has been an upswing of interest over the past four years.

Between 2016 and 2019 two-way trade rose 14 per cent to US$5.7 billion, according to the Taiwan Bureau of Foreign Trade.

The appliance maker Teco, electronics manufacturer Delta Electronics and tyre firm Maxxis are among the signature Taiwanese companies scoping out opportunities in the country, reports the professional services firm Deloitte. Meanwhile, the electronics assemblers Foxconn, Wistron and MediaTek – which already manufacture in India – are tipped by local media reports to make expansions worth hundreds of millions of dollars.

A Foxconn factory in Shenzhen, mainland China. Photo: AFP

Last December, state-run oil supplier CPC Corporation opened a New Delhi office. A CPC spokesman in Taipei said this month the company was deliberating whether to set up a refining plant in India to take advantage of its market size. A decision is expected as early as next year.

Taipei-based mobile internet service provider GMobi entered India in 2012 to help set up e-payment software systems as smartphone use was taking off. It has never looked back. “The population is huge,” said Brian Chen, investment director of the Oxymoney subsidiary that employs 60-plus people at a site near New Delhi. “The demand was quite large too.”

Oxymoney had wanted to enter an emerging market but felt Southeast Asia was too spread out geographically, Chen said.

Delta Electronics said in 2015 it planned to boost its India presence by investing US$500 million over 10 years on electronics production.

Beijing should tell Taiwan and Hong Kong what it has to gain from them

THE LURE OF INDIA

“The main thing India offers is a captive consumer base and access to the domestic market as well as a cheap labour source and the ease of doing business,” said Venkat Pasupuleti, manager of a US$130 million India fund operated by Dalton Investments in the US.

The country has made itself more attractive to foreign investors by cutting the corporate income tax rate from 30 to 22 per cent in September and taxing start-ups at just 15 per cent. Investors operating in special economic zones can avoid tariffs as well as income taxes. Labour costs 15 per cent less in India than in China, Pasupuleti estimated.

Inflation was under control at around 3 per cent and property prices were coming down, said Pasupuleti, who expected the Modi government to continue to break down barriers to foreign investment.

For investors who sell in India, the country’s relatively young population of 1.3 billion and rapid economic growth before the coronavirus outbreak signal increasing consumer power.

02:19

Taiwan military drill simulates coastal attack amid rising tensions with mainland China

PROBLEMS WITH BEIJING

Japan, South Korea and mainland China all invest more in India than Taiwan.

But officials in New Delhi had taken a particular interest in Taiwan as they had grown tired of geopolitical problems with mainland China, said Koushan Das, assistant manager for business intelligence at Dezan Shira.

Ties between India and mainland China have hit a low point since a border clash in the Himalayas in June killed at least 20 Indian troops and an undisclosed number of Chinese ones. Since then, in a move widely seen as retaliation, India has banned a host of Chinese mobile apps. It banned 59, including the hugely popular TikTok, at the end of June and a further 49 this week that were said to be operating as clones of the previously banned apps.

Taiwan’s President Tsai Ing-wen. Photo: EPA

Tensions between Taiwan and mainland China have also fuelled the pivot to India, which has coincided with the administration of Taiwanese President Tsai Ing-wen, who first took office in 2016. Tsai leans towards independence for the self-governed island and Beijing’s friction with her administration has increased with the introduction of the “New Southbound Policy”, which is aimed at nudging Taiwanese investors out of China by encouraging ties with 18 Asia-Pacific countries that include India.

Since Tsai’s election, Beijing has suspended official exchanges with Taiwan, staged war games, and poached seven of the island’s allies.

Despite the tensions, statistics from the island’s finance ministry this month showed Taiwan’s trade with mainland China had actually soared in the past six months amid strong demand from the mainland for chips and other electronic and telecoms products.

However, observers warn this boom could be short-lived if the US asks Taiwan to stop its hi-tech exports to mainland China.

For now, observers say, strengthening links between India and Taiwan offer both a way of hedging their exposure to the geopolitical risks regarding trade with mainland China.

“Both sides have taken a conscious effort to enhance their relations to meet the challenges of the ongoing geopolitical tensions,” Das said.

“India has realised the growing technical capabilities of Taiwanese firms and how they can be utilised to support the Indian manufacturing sector, while Taiwan sees India as a means to reduce dependency on China.”

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