An economic slowdown and intensifying competition in China is prompting more Taiwan firms to pull out or scale back operations in the mainland and step up focus on the business back home.
The homecoming and rejig of business strategy is welcome news for Taiwan’s president-elect Tsai Ing-wen, who has said often that the island must reduce its economic dependence on China.
One of the most recent moves came from printing firm Choice Development Inc.
The company announced last month that it had withdrawn from the China market after suffering a loss of around NT$100 million (US$3 million) per year in the last five years.
The Taipei-listed entity, which has been in the China market for around 20 years, admitted that intensifying competition in the mainland has forced it to abandon the market. It said it’ll reconfigure its resources in Taiwan for new packaging printing business, as well as commercial printing.
In another case, Karaoke chain store operator Cashbox Party World has also retreated from the China market. The company, which opened its first mainland outlet in Shanghai in January 1995, once had 18 facilities in the country but now has only two venues still in full operation there.
2015 was a particularly bad year as the company shut as many as 13 outlets in China. Cashbox blamed high rental costs and weak consumption sentiment for its failure in China.
In fact, Cashbox recorded four consecutive years of red ink in the mainland from 2011, with the losses ranging from NT$261 million to NT$528 million. The decision to shift business focus to Taiwan has been welcomed by investors, who sent Cashbox shares up over 60 percent over the past year.
In the Taiwan stock market, “Retreat from China” concept has proved to be a winning bet for many investors.
Firms that have scaled down or shut loss-making businesses in China and shifted back home or moved operations to low-cost locations such as Vietnam fall under the ambit.
Contract garment maker Eclat Textile, for instance, enjoyed a 40 percent jump in its share price in the past 52 weeks following strong orders from clients such as Nike and UnderArmour. The company has been expanding its manufacturing base in Vietnam since 2004, six years after it built the first China plant in Wuxi.
At present, Vietnam operations account for 60 percent of Eclat’s sales, and the proportion is only set to increase in the future.
Many Hong Kong-listed Taiwan companies also suffered due to sluggish operating results in China.
Blue chip Want Want China Holdings, which was once a favorite of institutional investors due to the China domestic consumption concept, has now seen its share price fall from a peak of HK$13 to below the HK$5 level.
Rising costs, intensified competition and sluggish demand in China have led investors to turn away from the snack food maker.
Shoemaker and retailer Daphne Holdings is another Taiwan firm that has faced a lot of difficulties in the mainland.
As the Chinese market underwent a massive change, with younger consumers preferring to shop online through platforms such as Taobao and Tmall, Daphne shut down 181 outlets in China in the first half of last year.
The company is now trying to launch its own e-commerce platform to win back market share.
Uncertain economic climate, increased operating costs and growing penetration of e-commerce are posing a challenge to almost all Taiwan companies operating in China.
Taiwan companies have been the front-runners in investing in the mainland since the 1990s after Beijing began opening up the economy for foreign investment.
In the past eight years, the island’s KMT government had worked closely with the mainland on a series of pacts to enable free trade between the two sides. The trade pacts offered an opportunity for China firms to invest in Taiwan and expand their influence.
This fueled concern among many people in Taiwan that Beijing could gain undue leverage over the island’s economy.
The “economic invasion” fears triggered the so-called Sunflower Movement in 2014, which saw students and civic groups staging various protests against the KMT regime.
The anti-Beijing sentiment paved way for defeat of KMT and the victory of independence-leaning Democratic Progressive Party (DPP) in Taiwan’s presidential and parliamentary elections last month.
Tsai, who has led the DPP and will take over as Taiwan’s president in May, has called on Taiwan firms to invest at home in innovative industries like pharmaceutical technology, defense industry and green economy.
That will help incubate new industries, strengthen the island’s economy and create sufficient job opportunities to Taiwanese youth, the president-elect had argued.
Tsai’s economic policy also calls for reduced reliance on China in overseas operations, with companies urged to tap the potential in other markets such as Vietnam and India.
In the long run, Taiwan may also embrace to the US-led Trans Pacific Partnership trade bloc to enter developed markets such as Australia, New Zealand and the US.
Several Taiwan firms have taken action in line with Tsai’s policy and more are likely to join the efforts in the coming years.
Taiwan youngsters have been suffering from lack of enough job opportunities as well as low wages as major companies had sought to ride China in the past, leading to a hollowing out of the island’s economy.
With Tsai’s government-in-waiting aiming to rejuvenate the island’s industries, as well as to tap new investment from overseas, it will be interesting to watch if Taiwan will succeed in shaking off the China deadlock and move the economy to a new stage.
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