Investments in Taiwan hits decade high, reshoring boosts GDP even as firms expand in SE Asia

15, Mar. 2021

Innolux Corp. president James Yang (middle) seen here with company officials at the firm’s earnings briefing on March 3, 2021. It will expand capacity in Taiwan for advanced laptops and gaming panels while moving television set production back from China. (Photo courtesy of Central News Agency)
Innolux Corp. president James Yang (middle) seen here with company officials at the firm’s earnings briefing on March 3, 2021. It will expand capacity in Taiwan for advanced laptops and gaming panels while moving television set production back from China. (Photo courtesy of Central News Agency)

By Gloria Cho

TAIPEI, NNA –Taiwan has leveraged testy US-China ties and its success in containing the COVID-19 pandemic to boost domestic investment as well as expand in Southeast Asia as its manufacturers shift away from China to secure a stable supply chain.

A government-backed program initiated in mid-2019 to lure Taiwanese manufacturers back from China has seen good results. Of the NT$793 billion ($27.9 billion) that 209 Taiwan firms had pledged to invest on home ground, NT$698.4 billion had been utilized.

This program and two other incentive schemes targeting local firms under a broad ‘Invest in Taiwan’ campaign have collectively garnered NT$1.19 trillion in investment from 826 companies, according to data compiled by the Ministry of Economic Affairs (MOEA).

Leading the pack, Liquid crystal panel supplier Innolux Corp. made the biggest commitment NT$70.1 billion. It will expand capacity in Taiwan for advanced laptops and gaming panels while moving television set production back from China.

“We took the trade war crisis as a chance to beef up manufacturing capacity and drive automation production to account for 40 percent of the overall capacity in Taiwan now,” an Innolux official said.

So far, four automation television set production lines have been 'repatriated' to Taiwan, according to schedule, said Innolux.

While manufacturers eligible for the incentives will enjoy preferential loan terms, land concessions and tax breaks, they are also required to incorporate smart technologies in their business plan, a move that will sharpen their competitive edge.

The world’s largest OEM (original equipment manufacturer) composite racket supplier Topkey Corp. plans to spend NT$6.3 billion to set up new plants in Central Taiwan Science Park to house smart production lines and experiment on advanced processes. It has been operating over 70 percent of its capacity in China.

Guided by criteria such as using automation with low dependence on manpower and delivering high added value, the company has decided to produce advanced equipment components, bike frames and aircraft substructure products at the new plants, its spokesman Benny Chou told NNA. The engineering of the plants will begin next month at the earliest, he added.

Major printed circuit board (PCB) manufacturer Unimicron Technology Corp., whose clients include tech giants like Apple Inc., Intel, and Samsung, had promised to inject NT$26.6 billion to develop high-end IC boards and set up a new factory near its northern Taiwan’s Taoyuan headquarters.

“The capacity of the new plant will be allocated to produce advanced items such as Ajinomoto Build-up Film (ABF),” an Unimicron official told NNA, adding that it is boosting production in Taiwan also in response to the demand of clients.

Its Taiwan expansion is expected to raise revenue contribution from the current 60 percent, said the official.

As Taiwanese firms see opportunities for industry upgrade and growth, they are also urged to plan long-term and manage any geopolitical and economic uncertainties better.

Stephen Su, vice president and general director of the Industry, Science and Technology International Strategy Center, a unit under the Industrial Technology Research Institute, called on manufacturers to set up headquarters in Taiwan in order to fully develop their strengths in research and development, while establishing their manufacturing operations overseas.

“It’s about time to move from ‘Made in Taiwan’ to ‘Made by Taiwan’,” he urged.

As Taiwan is a small island with limited resources from land to human capital, it may not be feasible to house all the new developments or reshored ones from China.

Southeast Asia, a traditionally strong manufacturing outpost for Taiwanese businesses, has been luring more Taiwanese investors who do not want to be caught in the US-China friction.

Taiwan investments in Asean, the 10-member bloc in Southeast Asia, and certain parts of South Asia and Oceania, have climbed steadily over the years to reach $2.83 billion last year, a 1.38 percent increase from 2019.

Vietnam, in particular, has been favored by major Taiwanese electronic component assemblers such as Foxconn Technology Co., Compal Electronics, Inc., Inventec Corp., and Pegatron Corp. All of them have set up or will be setting production bases there.

Foxconn, also known as Hon Hai Precision Industry Co. at home, had obtained approval from the Vietnamese government to build a $270 million plant in the northern province of Bac Giang to produce laptops and tablets, according to a Reuters report earlier this year.

The plant will be developed by a newly established subsidiary Fukang Technology, which is expected to have an annual output of eight million units. Foxconn has so far poured $1.5 billion in Vietnam and plans to increase its investment by another $700 million, the report said.

Like what China did 20 years ago, Southeast Asian countries are attracting Taiwanese manufacturers with their plentiful manpower and low operating costs.

Instead of only eyeing short-term profits, “Taiwanese manufacturers should try to connect with local enterprises and integrate into the local supply chain to build a sustainable business model there,” advised Su of ITRI as he urged them to take a long-term view.

While Taiwanese manufacturers seek to dilute risks as they divest from China, the communist giant still remains as Taiwan’s largest export market, accounting for about 40 percent of exports. Also, Taiwan is one of China’s largest foreign direct investors.

Rupert Hammond-Chambers, managing director of BowerGroupAsia consultancy told NNA, the status quo is unlikely to change.

“While political tensions have spiked, Taiwan’s commercial sector and China’s commercial and political interests will continue to converge,” he said.

In fact, China remains a labor source and a huge market for Taiwanese manufacturers.

Topkey plans to scout for opportunities in China’s commercial aircraft supply chain this year, while Unimicron is maintaining its Chinese production to churn out products for Chinese clients.

Taiwan, often described as the largest beneficiary from the US-China trade spat, is likely to have its fortune “hugely conditional on the willingness of new U.S. president Biden’s administration to consolidate the gains" made under the former administration of Donald Trump and seek ways to build on those advances, said Hammond-Chambers, who is also the president of US-Taiwan Business Council.

Taiwan could benefit more from areas such as semiconductors, healthcare, energy and defense.

"There is hope that possible advances may also be possible with Japan as efforts are made to better integrate US-Taiwan-Japan interests in areas of co-interesting including defense and security,” he said.

Already, American tech giants such as Microsoft, Google and Amazon are boosting their investments on the island.

In October 2020, Microsoft announced that it would establish its first cloud data center in Taiwan and develop it as a hub in Asia for innovation in designing and building advanced cloud software and hardware infrastructure spanning AI, IoT and edge solutions.

Google also unveiled plans to build its third Taiwan data center in central Taiwan’s Yunlin County. The facility on a 200,0000-square-meter plot is reportedly worth NT$20 billion.

“Taiwan’s prowess in hardware makes it a suitable location for basing efforts to meld software and hardware together to provide platforms for emerging and next generation 5G, AI, IoT products,” said Hammond-Chambers,

With the flow of huge capital into the island, business investment is expected to account for 23.47 percent of Taiwan’s GDP in 2020, hitting nearly a decade high since 2011.

In 2021, Taiwan is likely to see GDP growing by 4.64 percent, up from 2020’s 3.11 percent, as the recovery is bolstered by consumption, investment and exports, according to MOEA.