Taiwan firms migrate to Southeast Asia from China

Mark O'Neill October 20, 2022 06:00

Driven by the zero-Covid policy, slowing economic growth and fear of a cross-Straits war, the migration of Taiwan firms to Southeast Asia is accelerating. They are being encouraged by their government.

In September 2016, the Taiwan government launched the New Southbound Policy, to reduce dependence on China and improve links with Southeast Asian countries with whom it has no diplomatic relations.

The Policy covers 18 countries: Thailand, Indonesia, Philippines, Malaysia, Singapore, Brunei, Vietnam, Myanmar, Cambodia, Laos, India, Pakistan, Bangladesh, Nepal, Sri Lanka, Bhutan, Australia and New Zealand.

In the first quarter of this year, profits of listed Taiwan companies from investments in the 18 countries surpassed their profits from investments in China for the first time. In the first half of 2022, profits by non-financial Taiwan listed firms from their mainland China operations fell 17 per cent. If TSMC and Foxconn are excluded, the fall was 39 per cent.

In its September 1 edition, the Wealth Magazine of Taiwan said that there were three ways for Taiwan companies to leave the mainland. One was to agree with the brands for whom they produce to move manufacturing to a Southeast Asian country. Another is to list on a mainland stock market and take the money out. This is common with companies in which the second generation of the founders do not wish to work in the mainland. The third is to sell the firm and the land on which the factories stand.

"Taiwan investors in China are becoming Taiwan investors in the world" is the phrase used to describe this transformation, it said.

Earlier this month the Center for Strategic and International Studies (CSIS) published a survey of 525 Taiwanese corporate executives. 25.7 per cent of the firms with business in China said that they had shifted some of their production or sourcing out of China and another third were considering doing so. Of those moving, 63.1 per cent were going to Southeast Asia and about half were moving some of their business back to Taiwan. 76.3 per cent said that Taiwan needed to reduce its economic dependence on China. "We must maintain Taiwan’s technological edge through more spending on research and development and broadening restrictions for technology transfer to China, the report said.

What is driving the Taiwan firms out are the Covid restrictions and their effect on supply chains and exports: the drop in domestic consumer spending and the slowdown in the economy, which rose just 0.4 per cent in the second quarter of this year. For the full year, Nomura Securities predicts growth of 2.7 per cent and Goldman Sachs three per cent.

Another factor is the technology war between Beijing and Washington. Many Taiwan hi-tech firms who manufacture in or sell to China find themselves trapped in the middle of this war.

A further factor is the worsening relations between Beijing and Taipei, especially evident during the PLA military exercises around and above Taiwan in response to the visit of Nancy Pelosi, U.S. House of Representatives Speaker, in August.

"How close are we to war?" asked the Global Views magazine of Taiwan in its September issue. In such a war, would Taiwan investors in the mainland be arrested and would their assets be seized?

The magazine detailed potential Chinese attacks, by missiles, soldiers landed from the air, a sea blockade and Internet attacks. In the CSIS survey, 38.7 per cent agreed or somewhat agreed that there would be some sort of military conflict in US-China relations in the next five years.

On October 7, at the Yushan Forum in Taipei, President Tsai Ing-wen said that the redirection of Taiwan company investments to the Southern countries "was now a consistent trend. Taiwan companies are able to develop more flexible smart supply chains that fit the needs of our New Southbound Policy partners, as well as open more markets in Southeast Asia."

Tsai said: "the New Southbound Policy was launched in 2016 with the aim to facilitate regional prosperity through trade and investment partnerships, technological and medical co-operation, and educational and people-to-people exchanges, with countries in South and Southeast Asia, as well as Australia and New Zealand."

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.