Taiwan’s Democratic Progressive Party government is hoping that the island can profit from the trade war that US President Donald Trump has unleashed on China, with at least 77 China-based Taiwan companies pledging NT$386.4 million (US$12.4 billion) to take advantage of a three-year plan to bring investment home from China. It is important to note that these so far are pledges.
As of June 25, the allegedly home-bound companies were envisioned by the government to ultimately create more than 35,000 jobs on the island, among them major electronics contract manufacturers Pegatron, Quanta, Compal, Pegavision and Innolux, as well as bicycle-maker Giant and construction machinery-maker Cheng Day Machinery Works.
The tally comes just in time for the DPP government, as Taiwan’s other recent economic data is bleak enough to pose serious risks to its chances of staying in power in elections scheduled for January next year.
Under the three-year plan, whose name loosely translates into “Welcome investment by Taiwanese overseas entrepreneurs,” businesses affected by the trade dispute that have been investing in China for more than two years and that want to invest in production lines incorporating smart technology are given government support in terms of land use, labor, tax services, water and electricity supply, as well as “fast financing.”
“This is part of a wider trend when companies that invest in manufacturing in mainland China realize that the U.S.-China trade war is not a temporary affair but the start of a process of de-coupling between the USA and China, a process that will make it less attractive for non-Chinese companies to manufacture on the Chinese mainland,” said Steve Tsang, the director of the University of London’s SOAS China Institute, in an interview with Asia Sentinel.
“Although the availability of government help in Taiwan can, as these cases have shown, make it an attractive location compared to locations in Southeast Asia or South Asia, Taiwan will face stiff competition in attracting the outward migration of manufacturing from the mainland, particularly in industries for which low cost labor is a key factor,” he added.
While it is a positive development for Taiwan’s president, Tsai Ing-wen, she will need much more and better economic performance than this to tip the balance, Tsang said. In public opinion polls Tsai had until recently been trailing the opposition Kuomintang’s (KMT) two most-likely presidential contenders, Foxconn founder and Taiwan’s richest man Terry Gou and Kaohsiung mayor Han Kuo-yu. But she has regained the lead against both of them as well as against independent Taipei mayor Ko Wen-je.
A top economic advisor to the Chinese National Association of Industry and Commerce, Taiwan (CNAIC), told Asia Sentinel that hardly anyone within Taiwan’s business circles believes that the repatriation wave will actually happen.
The much-hyped investment deals are done in rather informal meetings between the applying entrepreneurs and the Ministry of Economic Affairs (MOEA), the source said.
“MOEA provides them with loans at an interest rate of 1.5 percent, meaning the Taiwanese taxpayer shoulders the 0.3 percent-difference to the regular banking rate of 1.8 percent,” explained Bert J. Lim, president of the World Economics Society, a Taipei-based think tank.
“All this is based on simple promises to carry out the investment in Taiwan within a period of three to five years, during which the money can be used for other purposes, for example, the shifting of production lines from China to places like Cambodia or Myanmar, where interest rates are much higher, at around 6-8 percent,” he added.
Any relocation of production lines to Taiwan would run into the five bottlenecks -- land, labor, water and electricity shortages, along with Taiwan’s lack of a China-like economy of scale for suppliers and its lack of free-trade agreements with major export markets serving as additional downsides.
“Even our biggest company TSMC has a history of struggling with electricity supply, and our industry’s labor shortage rate stands at between 16-26 percent, so why would many China-based enterprises want to move to Taiwan instead of Southeast Asia?” Lim said.
“The DPP government’s relocation plan represents an opportunity for companies to hedge their trade war risks, rather than an opportunity for Taiwan to benefit from the exodus from China,” he added.
Indeed, when Pegatron’s CEO Liao Syh-jang on June 22 spoke setting up production facilities in Taiwan to supply the US to avoid US tariffs on China-made products, he mentioned in the same breath that Pegatron’s plant in Batam, Indonesia, will see increased shipments to the US in the second half of the year.
Similarly, Compal Electronics spoke of planning to increase its investment in both Taiwan and Vietnam, and Micro-Star International Co (MSI) is weighing the possibility of moving some production lines from China to both Taiwan and Southeast Asia.
And the Nikkei Asian Review June 18 reported that Apple Inc has asked its largest suppliers (all but two of which Taiwanese) to consider the costs of shifting 15-30 percent of their output from China to Southeast Asia.