Amid trade war, Taiwan firms move hi-tech production back home

January 17, 2019 11:26
The US-China trade war is prompting Taiwan tech firms to rethink their China manufacturing operations. Photo: Bloomberg

As the Sino-US trade war intensifies, Taiwan high-technology companies are moving production back home from mainland China, as they seek to avoid tariffs in the American market and possible future retaliation by the US against China-made products.

This is a historic change. In a few years from 2000, Taiwan's high-technology industry moved a substantial portion of its manufacturing to the mainland, after its government lifted a ban on such investments. The trade war has caused a return of this manufacturing that will intensify as long as the Sino-US dispute continues.

Quanta Computer has moved two lines producing 4,000 servers a month from its plant in Songjiang, Shanghai to headquarters in Linkou in northwest Taiwan. It makes three million servers a year, nearly all of them sold to the US market.

The firm's chief executive Barry Lam said that, while production costs in Taiwan were higher than in China, their customers, including Google and Amazon, were willing to bear the additional costs.

In November last year, Lam announced an investment of NT$4.28 billion to buy a 36,300 square-meter lot and 29,700 square meters of buildings in a technology park in Linkou. The company is busy recruiting staff to work on the production lines. According to its website, the firm, established in 1988, is the largest notebook ODM company in the world.

Lam also announced the establishment of a new Artificial Intelligence laboratory in Taiwan. "Not only is Quanta moving its supply chain of high-end products back to Taiwan, but the company is also shifting its focus to the development of consumer products in areas of smart medical care, smart manufacturing, and smart household with the new AI research center,” he said.

In September last year, the US imposed a tariff of 10 percent on China-made servers. This year it may increase that to 25 percent. Industry insiders believe Quanta has bought the land in Linkou in preparation for moving production of more high-tech items there.

Global production of servers is about 12 million units a year, of which the US accounts for 40 percent. Servers are key components in many products; some in the US suspect the Chinese government of embedding spy chips in the servers made there and sold to major US companies.

Another Taiwan high-tech company which has moved production back is Inventec Corp, which also makes servers, three million a year, of which it sells half to HP. In the middle of last year, it moved production of servers for the US market to its plant in Taoyuan, northwest Taiwan.

It said it would cope with the intensifying US-China trade war by shifting its labor-intensive module assembling business to factories in Taiwan, Malaysia or Mexico to avoid US tariffs on Chinese imports. "The trade war is the biggest risk facing the electronics industry, undermining capacity expansion plans in Shanghai and other cities in China,” it said.

In the third quarter last year, notebook computers constituted the biggest portion of the company’s revenue, accounting for a 45 percent share. Servers accounted for 36 percent and smart devices 18 percent.

Writing in the Industrial and Commercial Daily on Tuesday, Cynthia Chu, Taiwan managing director of CBRE, the global commercial real estate consultancy, said the Sino-US trade war had given Taiwan companies a new opportunity to transform.

According to figures from the Ministry of Economic Affairs, by the end of October last year, over 40,000 Taiwan companies had operations in the mainland, with investment of more than US$180 billion, she noted.

“The Taiwan government wants to turn the danger of the trade war into an opportunity to encourage its companies to relocate in Taiwan,” she said. So it is offering them incentives in terms of labor, land, taxes and provision of water and electricity.

One indication of this was a dramatic increase of 77.1 pe cent to NT$55 billion in the sale of industrial land, factories and offices in 2018 over the year before – much of them bought by companies planning to relocate their facilities.

David Goldstein, an American businessman in Taipei, said that never since Washington normalized diplomatic ties with Beijing in 1979 had Taiwan enjoyed such close relations with the US government.

“No-one in Congress is willing to speak up for China,” he said. “This trade war reflects a consensus among all parties in Washington that China is and will be a strategic threat. This is very advantageous to Taiwan. Trump is erratic and unpredictable, of course, but, in this climate, how could President Xi Jinping dare to wage a war on Taiwan?” he said.

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A Hong Kong-based writer, teacher and speaker.