Home move of overseas Taiwanese businessmen could be short-lived

More Taiwanese businessmen are moving part of their operations back home from Mainland China, but scholars and businessmen have warned that the move could be short-lived as production cost in Taiwan is high and the island is not a member of regional trade pacts.

As of January 9, overseas Taiwanese companies have vowed to invest NT$714.8 billion and create about 60,000 jobs on the island under the Action Plan for Welcoming Overseas Taiwanese Businesses to Returtn to Invest in Taiwan, according to Taiwan’s Ministry of Economic Affairs.

President Tsai Ing-wen announced the plan on July 1, 2019, and the pledged investment came from 168 approved applications. However, scholars said people should not be too optimistic about the policy because of the high cost of investing in Taiwan and the island’s worsening diplomatic relationship with other countries.

Exclusion from regional trading networks

“The policy is an election campaign tactic,” said Hsu Bo-xiang, assistant professor of the National University of Kaohsiung. If Taiwan is further alienated from the region’s economic and trade networks, the return of Taiwanese businesses may not last long, he said.

Hsu Bo-xiang, assistant professor of the National University of Kaohsiung, says the home move of overseas Taiwanese businessmen may not last long.

Taiwan has been excluded from the negotiations of the proposed Regional Comprehensive Economic Partnership (RCEP) agreement, which is expected to be signed this year.

RCEP is a free trade agreement in the Asia-Pacific region between the ten member states of the Association of Southeast Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam) and their five free-trade agreement partners (Australia, China, Japan, New Zealand, and South Korea). Not being a member of RECP, Taiwan will not be able to enjoy trade benefits with member countries of RECP. 

Shin Chuei-ling, professor at the department of political economy of the National Sun Yat-san University, said Taiwan faced a similar situation in respect of the Comprehensive Progressive Trans-Pacific Partnership and Free Trade Agreement of the Asia Pacific, which is a free trade agreement between Canada and 10 other countries in the Asia-Pacific region: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

She said it was a relief that the integrated circuit business in which Taiwanese companies were big players was protected by the World Trade Organization’s Information Technology Agreement (ITA). But many Taiwanese companies involved in other lines of business are not protected by various regional trade agreements of which Taiwan is not a member, she said. 

Shin Chuei-ling, professor at the department of political economy of the National Sun Yat-san University, says Taiwan’s exclusion from regional economic and trade networks may impact the island’s businesses.

According to Taiwan’s Ministry of Finance, the island’s export in 2019 amounted to US$329.34 billion, of which Mainland China and Hong Kong accounted for 40.15%. Exports to ASEAN countries, Japan and South Korea constituted 16.37%, 7.07% and 5.15%, respectively. 

As Taiwan is not a member of the proposed RCEP and other Asia-Pacific regional trade-free agreements, Taiwanese businesses have to pay more tariffs for their exports to the member countries of these trade pacts.

Unlike in Korea, where large consortiums dominated trade, an overwhelming majority of Taiwanese businesses are small and medium-sized companies, said professor Shin.

“Face with this kind of trade barriers, Taiwanese companies will choose to establish operations in those countries that have signed free trade agreements in order to reduce the risk posed by tariffs,” she said.

High cost deters businesses from returning

In addition to Taiwan’s disadvantaged position in regional economic and trade networks, enterprises investing in Taiwan also face internal hindrances.

Having established factories both in Mainland China and Taiwan for more than 20 years, Zhang Qiu-lian, a businesswoman who manufactures measuring instruments, said returning to Taiwan would not be an easy undertaking.

“Moving a business is not like moving a house. You cannot move back every equipment, every factory, everything all at once,” she said.

Ms. Zhang’s remarks echo with Kao Chen-yuan, the Deputy Director-General of the Kaohsiung City Government Economic Development Bureau. He said the Action Plan for Welcoming Overseas Taiwanese Businesses to Return to Invest in Taiwan might not be as effective as the central government claimed.

The policy provides preferential treatment regarding land, water and electricity,  workforce, taxation and capital to encourage Taiwanese companies abroad to return.

For example, companies setting up in industrial zones developed by the government are given two-year rent concessions and allowed to hire foreign workers with fewer restrictions.

“Although the policy has offered overseas Taiwan businessmen more incentives to return, we are not seeing them moving back in large numbers,” said Mr. Kao.

“Businesses which had invested overseas have already established their production systems with factories located globally. It is hard for them to return immediately,” he said.

Mr. Kao said Taiwan’s high cost of production was another factor that made businesses hesitant to come back. “Taiwan has long been facing the problems of five shortages, including land, water, power, workforce and talent,” he said. As a non-nuclear area, Taiwan cannot generate electricity by nuclear power, which brings about the lack of electricity and high electricity fees. But Taiwan companies are big in the business of manufacturing semiconductors, which is in high need of electricity, he added. 

The Environmental Impact Assessment Law may be another hindrance. Kao said some companies could not stand the long process of going through a strict environmental impact investigation.

According to media reports, In 2018, Taiwan Semiconductor Manufacturing Company, the world's largest wafer foundry semiconductor manufacturer, planned to establish a new plant in Southern Taiwan Science Park.

But it was unable to pass the water and electricity usage assessment until it promised that 20% of its electricity usage would be generated from green energy. 

High-tech companies more likely to return

Most Taiwanese companies that have decided to move their production back home from Mainland China in a bid to avoid tariffs in the U.S. market are high-tech and high value-added companies. It is because the policy targets investment plans that incorporate smart technologies, according to Operational Outlook Survey for the Second Half of 2019 released by National Development Council together with Supply Management Institution, Taiwan and Chung-Hua Institution for Economic Research.

Arima Communications Corp. is one of the biggest smartphones outsourcing manufacturers in Taiwan and has decided to invest NT$500 million back on the island, reported by United Daily News. 

Many other companies have adopted a wait-and-see attitude as there is an increasing optimism of a deal between China and the United States to put their trade war on hold, although there are still a lot of uncertainties about the future, professor Hsu said. 

“Businessmen are realistic, they will not make drastic changes merely because of an uncertain political factor,” Hsu of the National University of Kaohsiung said, “What they consider more is resource allocation in accordance with global industrial chain layout.”

“Tsai’s action plan is more a campaign tactic for her bid for the presidency. We should not be too optimistic for now,” he added.

 

《The Young Financial Post 新報人財經》

新報人財經(TYFP)為香港浸會大學新聞系財經專業的實驗平台,由學生自主編採,為社會大眾提供中港相關的金融財經消息。

留言

【2020台灣大選】韓國瑜落選 「庶民政策」停擺?

【2020台灣大選】韓國瑜敗選總統 高雄產業轉型的機遇和困難