Taiwan investment in China falls to record low

Mark O'Neill February 22, 2024 22:10

Driven by economic and political factors, Taiwan investment in China last year fell to a record low, as companies put their money into the allies of Taipei and countries in South and Southeast Asia as encouraged by their government.

The investment in China in 2023 totalled US$3.04 billion, a 39.8 per cent fall from the year before and the lowest amount in over 20 years, the Ministry of Economic Affairs said. It accounted for just 11.4 per cent of Taiwan’s total FDI in 2023, compared to a record high of 83.8 per cent in 2010.

Historically, Taiwan was one of the highest foreign investors in the mainland. Between 1991 and 2023, the Taiwan government approved 45,523 investments there worth US$206.37 billion, accounting for 50.7 per cent of all the island’s foreign investment during that period.

In 2023, the government approved more than US$26 billion of investment overseas, an increase of over 80 per cent from 2022. The favoured destinations were the United States, Europe, India and the countries of ASEAN.

Many factors are driving this flight from the mainland. One is the cold war between China and the U.S., the main export market for Taiwan companies. Clients there are demanding that their suppliers source parts and components from countries other than China.

Another factor is China’s slowing economy. Last year its GDP grew by 5.2 per cent. The World Bank forecasts 4.5 per cent in 2024, because of the weak property sector, tepid consumption, high levels of debt, ageing and slower growth in productivity.

Total FDI into China last year was US$33 billion, a drop of 82 per cent from the US$183 billion in 2022.

Many of the first Taiwan entrants into China were labour-intensive, low-technology companies. They have since been replaced by domestic competitors.

Another negative factor is the worsening relations between Beijing and Taipei since the Democratic Progressive Party (DPP) took power in 2016. Since then, Beijing has cut off official ties, leaving Taiwan investors more vulnerable. Unlike foreigners in China, they have no diplomatic protection in case of disputes or arrest.

In January, Lai Ching-te won the Presidential election, giving the DPP four more years in office and meaning no improvement in bilateral ties is likely during his term.

During the last two years, Beijing has intensified military exercises around Taiwan, sending fighter jets close to its airspace every week.

In an editorial on Tuesday (February 20), the Industrial and Commercial Daily said that, since the 20th Party Congress in October 2022, Beijing had increased its military pressure in the name of nationalism and taken economic and trade measures to weaken Taiwan’s economy. “Our government has never come up with an effective response,” it said.

During the presidential campaign, none of the three major candidates was willing to satisfy Beijing’s conditions for reunification under the “one country, two systems” formula. It is strongly opposed by the Taiwan population.

So the government and companies are looking for growth outside the mainland, especially in the high-tech sector.

This week the Taiwan Semiconductor Association forecast growth of 15.4 per cent in production of integrated circuits this year to NT$5.12 trillion, driven by demand for artificial intelligence and high-performance computing. It said that Taiwan’s chip-making industry output in 2024 will rise 16.6 per cent to NT$3.1 trillion.

C.Y. Huang, president of FCC Partners, said Taiwan’s economy this year would perform better than in 2023 because of the recovery in the U.S. economy and higher growth in the AI and semi-conductor sectors, in which Taiwan is strong.

Earlier this year Steve Chen, one of the founders of Youtube in 2005, returned from California to Taiwan to establish a project that aims to hatch mega companies that will grow with the support of the capital, connections and knowhow of Silicon Valley.

“Taiwan has enough talent to form several big tech firms,” he said. “The dream is that they will all be unicorns (start-up value of more than US$1 billion). Chen wants to provide start-ups with the foreign connections and international exposure they need.

Even in tourism, Taiwan is seeking to thrive without China. The mainland used to be its largest single source of tourists, ahead of Japan and South Korea. But COVID and political disputes have cut the number of Chinese tourists to zero.

“We get no Chinese tourists either individually or in groups,” said a staff member of Miramar Garden Hotel in central Taipei. “The only mainland guests are on business trips. The problem is politics.”

Wang Kuo-tsai, Minister of Communications, said this week that the target for tourist arrivals this year was 12 million, compared to the actual 6.4 million in 2023. “Even if mainland visitors do not come, we will maintain the target of 12 million. The Tourism Bureau has increased the number of overseas offices to 18 from 15, including in India and Indonesia, small markets in the past.”

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.