Features Taiwan Companies

Taiwan firms invest less in China, turn to home and SE Asia

19, Jun. 2020

Photo by Remy Gieling on Unsplash
Photo by Remy Gieling on Unsplash

By Gloria Cho

TAIPEI, NNA – Sino-U.S. trade and technology disputes coupled with the fallout from COVID-19 have sent a growing number of Taiwanese investors – some of the world’s first that tried offshoring their factories in China – to choose sites at home or in Southeast Asia.

Over the past 10 years, publicly traded Taiwanese firms have invested NT$2.51 trillion ($84.8 billion) in mainland China, mainly from the computer to electronics manufacturing sectors. That figure comes to about one-third of the NT$6.69 trillion they invested elsewhere over the same period, according to the data compiled by the Financial Supervisory Commission.

Taiwanese investment in China has been slowing from a peak in 2014, when publicly traded companies poured in NT$377.2 billion. They have backed away since then because of rising labor costs and stricter environmental rules in China.

The 2-year-old Sino-U.S. trade dispute, which has forced exporters to pay additional U.S. tariffs on products shipped from China, and production stoppages in China during the COVID-19 outbreak, have hurt Taiwanese companies that produce goods on the other side of the strait.

Publicly traded companies invested a decade low NT$11.7 billion in mainland China last year, compared to NT$155.7 billion in other regions.

“The meager increase reflects that business owners are reserved and careful with investment in a time of uncertainty,” Yang Shu-ling, deputy commissioner of the Investment Committee under Taiwan’s Ministry of Economic Affairs, told NNA on May 28.

From January 2019 to June 12 this year, 529 Taiwanese companies had pledged to invest roughly NT$1,028 billion at home, ministry data show. Last year the government began offering incentives to bring capital back from China to ease impacts from the trade dispute.

Liquid crystal panel supplier Innolux Corp. pledged the single highest amount, a NT$70.1 billion investment, to expand capacity in Taiwan for advanced laptops and gaming panels while moving television set production lines back from China.

“We took the dispute as a chance to beef up manufacturing capacity and automation production in Taiwan,” an Innolux Corp. official told NNA Thursday

Southeast Asia, another traditional stronghold for Taiwanese firms, is also picking up investors trying to avoid the Sino-U.S. trade dispute.

In Thailand, for example, Taiwanese electronics manufacturer New Kinpo Group has become a magnet for other Taiwanese components suppliers, spawning an industrial park that’s set to open by early 2022.

In 2019, investment projects targeting the 10-country Association of Southeast Asian Nations plus parts of South Asia and Oceania reached $2.79 billion, a 16.2 percent increase year on year.

Taiwanese firms, however, still invest in China to serve the domestic demand of a large population or join infrastructure construction projects subsidized by the Chinese government, said Sophy Yang, an associate research fellow and deputy director with the Chung-Hua Institution for Economic Research.

Taiwanese suppliers with U.S. as well as Chinese clients must find ways to ensure both that they’re not leaking information considered sensitive by the other, Yang told NNA on May 29. That means separate supply chains and technologies. “Of course, that means extra cost, and so Taiwanese firms are observing how things will develop,” Yang said.

In the shorter term, Yang added, Taiwanese firms in China will act to reduce risk of their operations being paralyzed by widespread business closures in cities with COVID-19 cases.