In historic shift, Taiwan firms return home from mainland

Mark O'Neill January 21, 2021 06:00

Over the last 30 years, Taiwan firms have invested nearly US$200 billion in the mainland, making them one of the largest outside investors, and played an important role in the China export miracle.

But now history is going in reverse. Since 2016, new Taiwan investment in the mainland has declined. Last year this investment was half of what it was in 2019. Since 2017, Taiwan firms have been remitting more money home than they send to the mainland.

Several factors are driving this migration. Most important is the Sino-US trade war which will likely continue during the Biden administration that takes office this week. U.S. companies want goods, parts and components not made in the mainland.

The second factor is rising production costs in Guangdong, Jiangsu, Zhejiang and other provinces favoured by Taiwan firms. A third is the increasing competitiveness of Chinese manufacturers. A fourth are the incentives to move home.

In 2019, the Taiwan government implemented the “Action Plan for Welcoming Overseas Businesses to Return to Invest in Taiwan”. It offers benefits, including attractive loans and rent concessions, to Taiwan manufacturers willing to relocate some or all of their operations back to the island. According to the InvesTaiwan Service Centre of the Ministry of Economic Affairs, 733 returning firms have received approval to move or expand their operations in Taiwan. So far they have promised NT$1.15 trillion in investment.

In 2019, Quanta Computer began moving production of servers for sale to the U.S. back to Taiwan. They are now produced in a building opposite Quanta’s headquarters in Taoyuan. It is also investing NT$15 billion in a giant new factory in the same area to boost production of goods the company used to make in China, such as telecommunications devices used in servers. It supplies such devices to Facebook, Google and other large U.S. companies.

“More customers in the telecom sector want equipment without Chinese-made parts, given the U.S. crackdown on Huawei and other Chinese manufacturers,” Quanta said.

Other companies to return include Compal, a maker of computers, and printed circuit board supplier Unimicron Technology, which is expanding its Taiwan plant. Acer and Asustek Computer have also moved production of laptops back to Taiwan. These moves have caused an increase in land prices in industrial and technology parks in Taoyuan, a popular investment destination.

Innolux, a display panel maker owned by Foxconn, is investing NT$70.1 billion in Taiwan, including a new factory in Tainan that will be almost entirely automated.

“The era of cross-strait industrial co-prosperity is over,” said Liu Jen, editor-in-chief of CRIF China Credit Information Service in Taiwan. “I see a structural collapse among the ranks of Taiwan-owned businesses in China.”

From the late 1980s, Taiwan firms were the second large group of outside companies to invest in the mainland, after those from Hong Kong. First to arrive were makers of textiles, shoes, furniture and sport goods. They were followed by Foxconn and others in the computer and electronics industries. The early arrivals prospered, especially Foxconn.

These economic ties continued to boom even during the 2000-2008 rule of the Democratic Progressive Party (DPP), under President Chen Shui-bian, when political relations were frozen.

The game-changer was the arrival of Donald Trump as U.S. president in 2017 and his strategy to ‘decouple” its economy from that of China. Since U.S. companies are the most important customers of Taiwan’s hi-tech firms, they have had no alternative but to transfer some of their supply chains to Taiwan, as well as Southeast Asia and India.

Taiwan firms at the low-tech end face intense competition from mainland manufacturers of the same goods and are increasingly unprofitable. Other challenges are the rising cost of land and wages, stricter environmental regulations and theft of intellectual property.

Now the firms fear they could become collateral damage in the worsening political and military conflict between the two sides. In 2020, the PLA flew 380 sorties into Taiwan’s Air Defence Zone, a record for a single year.
Taiwan investors in the mainland go to great lengths to stay out of politics and maintain cordial relations with the local governments that regulate them and give approvals for their projects. They understand better than anyone the risks of being linked to political parties or individuals in Taiwan. They have 30 years of experience of riding these turbulent waves.

But, in the event of a conflict, they could become hostages and their firms penalised. A 30-year love affair is coming to an end.

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.